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Tuesday, November 22, 2011

Gold and Silver Chart Patterns: an update

A few months of correction, and all the chatter about a return to the gold standard and the dollar no longer being a reserve currency is off the table! The signs of revival seen on the chart patterns of gold and silver two weeks back proved to be illusory.

Both precious metals are now trading below their 14 day, 30 day and 60 day SMAs, and may drop down to test their Sep ‘11 lows. Will that provide a buying opportunity?

Gold Chart Pattern

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The answer should be ‘Yes’ for gold, because it is trading well above a rising 200 day SMA and is in a bull market. Note that the 1750 level provided good support till gold’s price chart formed a small ‘double-top’ reversal pattern and suddenly dived on Thu. Nov 17 ‘11.

A test of the 1600 support level is on the cards. The support should hold since the 200 day EMA is also near 1600. Just in case 1600 gets broken – nothing is certain in technical analysis – 1530 should be a stronger support due to the multiple tops formed near that level during Apr – Jun ‘11.

The downside to a bounce up from 1600 is that a bearish ‘descending triangle’ will get formed, from which gold’s price may fall all the way to 1300. This is a hypothetical possibility as of now, so no need to be alarmed. Let the chart pattern unfold. But it may be prudent not to be gung-ho bullish about buying the likely bounce up from 1600.

Silver Chart Pattern

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The answer to the question is ‘Not yet’ for silver, because the white metal and all three of its moving averages (only the 14 day SMA is shown on the chart) are trading below the 200 day SMA – which indicates a bear market. The Sep ‘11 low of 28 may be tested and broken.

Note that silver’s price was consolidating within a small symmetrical triangle formed near the support level of 34, before breaking down sharply on Thu. Nov 17 ‘11. Drawing lines through tops formed in Apr ‘11 and Aug ‘11, and bottoms formed in May ‘11 and Sep ‘11 will form a broad downward-sloping channel pattern with its lower end currently at 26. That is a level which provided support in Nov ‘10 and Jan ‘11 – so an upward bounce can be expected from 26.

Bravehearts may try to bottom-fish at 26. Conservative investors should buy only on a convincing break out above the downward-sloping channel.

2 comments:

Piyush said...

Dada,

Thanks for regular updation on Gold & Silver. Is it possible for you to give your view in Rupee terms & view on Crude & Dollar=Rupee pair. The way Rupee is weakening I fear there will be Hyper Food inflation in India.

I also heard on News channel that Govt. has given clearance to export Sugar when Sugar is cheaper in international market, so Sugar is going to be more bitter or Diabetic in near Future for Indian Public. Thanks to Govt. Policies which ultimately give fuel to Food Inflation.

With Regrds,
Piyush Shah

Subhankar said...

Appreciate your comments, and thanks for the suggestion. I'll try to locate appropriate charts for oil and currency to be able to write about them.

Allowing sugar exports when Indian prices are higher makes little sense. All it has done is lower international prices further!