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Tuesday, December 20, 2011

Gold and Silver Chart Patterns: an update

Gold Chart Pattern

Microsoft Word - Document1

In a post two weeks back, the possibility of a break below the symmetrical triangle pattern on gold’s price chart had been mentioned, even though gold was trading way above its rising 200 day SMA. A downward target of 1450 was also mentioned. Such huge drops – from 1750 to 1450 - don’t happen in one shot. But the drop of 150 within two weeks must have shaken the confidence of die-hard gold bulls.

A swift and steep drop below the 200 day SMA stopped just short of the support level of 1550 (where multiple tops were formed in May and Jun ‘11). A pullback to the long-term moving average was only to be expected, and has been in progress for the past three trading sessions.

The 14 day SMA is falling towards, and may soon drop below, the 200 day SMA. That will be the first warning of a likely change of the bull trend. The 30 day and the 60 day SMAs – not shown in chart above – are also falling. Note that the ‘panic bottom’ of 1600 – formed in Sep ‘11 – has been broken. Panic bottoms seldom hold.

The break down below the triangle was a selling opportunity. So is the current pullback. Long-term holders who may have entered at lower levels can stay invested with a stop-loss at 1550.

Silver Chart Pattern

Microsoft Word - Document1

The 200 day SMA has just about started to fall as silver’s price is moving down towards the lower edge of its downward channel. All the three moving averages – 14 day (in chart above), 30 day and 60 day SMAs – have crossed below the 200 day SMA, with silver’s price trading below all four.

Silver is in a bear market, and can fall to much lower levels. Looks like ‘game over’ for the bulls.