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Tuesday, December 6, 2011

Gold and Silver Chart Patterns: consolidating

Gold Chart Pattern

Microsoft Word - Document1

Gold’s chart has been consolidating within a symmetrical triangle pattern (in yellow) for the past 10 weeks or so, and is ripe for a break out of the triangle. In which direction? Knowing the answer can make some one seriously rich! Triangles are quite unreliable and the break out can occur in either direction.

On an upward break out – which should be accompanied by heavy volumes for the break out to be valid – gold’s price can reach 2000. On a downward break, the price can fall to 1450. There is a third possibility. Gold’s price can continue to consolidate and move sideways through the apex of the triangle (at around 1725). In the latter case, the triangle pattern would fail.

Since gold’s price chart is in a bull market – it is trading well above its rising 200 day SMA – an upward break out has greater probability. But technically, the chart is showing some weakness. Note that the recent rally faced resistance from the 1750 level and failed to reach the upper edge of the triangle. That may be a prelude to a break below the triangle.

Await the break out before taking a decision to buy or sell.

Silver Chart Pattern

Microsoft Word - Document1

Ever since the steep drop below the 200 day SMA about 10 weeks back, silver’s price has been in a sideways consolidation between 28 and 36. The 200 day SMA is beginning to flatten out and should start falling – confirming a bear market.

In my previous post, I had mentioned that silver’s price has been trading within a downward-sloping channel (in yellow). The trend is down, and will remain so till the upper end of the channel is convincingly breached. With manufacturing activities contracting in Europe and the emerging markets, there is little likelihood of a boost in silver’s price any time soon.

Stay away till clarity emerges about a resolution of the Eurozone debt problems.

1 comment:

Subhankar said...

Gold's price had broken below the symmetrical triangle on Dec 13 '11. In today's (Dec 14 '11) trade, gold has dropped below its rising 200 day SMA on an intra-day basis.

A drop to 1450 is likely.