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Tuesday, June 7, 2011

Gold & Silver Chart Patterns: pair trading opportunity?

Regular readers of this blog know that I’m not a great fan of investing in precious metals. Neither do I trade for the short-term, nor do I recommend that small investors should indulge in trading. But sometimes an opportunity stares you in the face – as the one year gold and silver closing chart patterns seem to be doing now.

Gold Chart Pattern


The technical headwinds that the gold chart was facing last month led to a decent correction below the 14 day SMA. Such corrections restore the health of the bull market and provide good entry points.

Isn’t gold’s price near an all-time high, and shouldn’t one be cautious? The current investor interest in gold has been largely due to the weaknesses in the dollar and the euro. The currency weaknesses aren’t going away any time soon. Gold’s bull market is likely to test and surpass its recent peak of 1565.70.

But it is a good idea to be careful – more so because gold’s price and its 14 day SMA have both risen far away from the rising 200 day SMA. A deeper correction may be around the corner. Stay invested with a trailing stop-loss.

Silver Chart Pattern


The technical headwinds turned into a full-blown hurricane in silver’s chart pattern. A 33% correction from the peak of 48.70 to a trough of 32.50 has shaken off the speculators.

Silver’s price has been consolidating within a triangle pattern and has edged above the 14 day SMA, but remains below the falling 30 day SMA. The possibility of a breakdown below the previous low and a test of support from the rising 200 day SMA can’t be ruled out.

The pair trade? Long silver, short gold. But remember – I have no skin in this game!

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