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Tuesday, November 8, 2011

Gold and Silver Chart Patterns: rallies reviving?

The sharp corrections seen on gold and silver chart patterns appear to be over, and the bull rallies are all set to resume. Gold’s price never dropped below the 200 day SMA, so technically it was just a bull market correction following a double-top reversal pattern. Silver’s price dropped below the 200 day SMA and has stayed below the long-term moving average for more than a month, raising the spectre of a bear market. However, there are signs of revival of late.

Gold Chart Pattern

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Gold’s price is trading above its 14 day, 30 day, 60 day and 200 day SMAs, and all four moving averages are rising – which is the sign of a bull market. More importantly, the price has climbed above the 1750 level – the ‘valley’ level between the two tops at 1900.

Note that the 1750 level acted as a resistance during the recent up move, and once the resistance was overcome, the resistance level has turned into a support level. Gold’s price should start moving up towards its previous top of 1900, and eventually test and overcome the 1900 level to touch a new high.

A satisfactory resolution of the Eurozone debt problems may cause a renewed interest in risky assets and slow down the up move in gold’s price. But the bull market in gold is very much alive, and price dips can be used to add.

Silver Chart Pattern

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Silver’s price is on a gradual recovery path, though it is still trading below the 200 day SMA. The fact that the white metal is trading above its 14 day and 30 day SMAs, and the 200 day SMA has started rising again point to a revival of interest in buying silver.

Intrepid investors can start accumulating slowly at current prices. The more prudent action will be to wait for a convincing cross above the 200 day SMA before buying. As with all purchases, a strict stop-loss should be maintained – say, at 32.

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