Tuesday, May 15, 2012

Gold and Silver chart patterns: the glitter is gone

Gold Chart Pattern


In the previous post three weeks back about gold’s chart pattern, readers were warned that a bear market was looming. Now only a final technical confirmation is awaited – the ‘death cross’ of the 50 day EMA below the 200 day EMA - and that should come soon enough.

Gold’s price is trading well below its falling 20 day EMA, which could lead to a technical bounce at any time. Such a bounce will be an exit opportunity for those who may still be holding on. A test of the Dec ‘11 low of 1520 is on the cards. If gold’s price falls below 1520, it can drop to 1475. Strong volumes on down days since this leg of the correction started in end-Feb ‘12 is a clear sign of distribution.

The technical indicators are bearish and looking oversold. The RSI is inside its oversold zone. Note that on the previous occasion in Dec ‘11, a drop into the oversold zone was followed by an upward bounce. The MACD is below its signal line, and sliding deeper into negative territory. The slow stochastic is well inside its oversold zone.

Silver Chart Pattern


Just after the previous post on Apr 24 ‘12, silver’s price bounced up from 30 but could not surmount resistance from the falling 20 day EMA. Silver has been in a one-way downward move since then and sinking deeper into a bear market. A test of the Dec ‘11 low looks imminent. The zone between 25-26 should provide good support. Will the support hold?

The technical indicators are not providing much hope for the bulls. Both the RSI and the slow stochastic are inside their oversold zones. The MACD is falling below its signal line in the negative zone. Any upward bounce is likely to be feeble and provide a selling opportunity to the bears.

The precious metals are losing their glitter. Better to stay away.

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