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Tuesday, June 12, 2012

Gold and Silver chart patterns: bear market rallies face resistance

Gold Chart Pattern

Gold_Jun1112

A sharp bounce on a high volume spike – probably on expectation of QE3 - took gold’s price above its falling 20 day and 50 day EMAs and the 1630 level, but fell short of the falling 200 day EMA. A couple of days of consolidation was followed by an intra-day breach of the 200 day EMA and the 1640 level but formation of a lower top.

A drop below all three EMAs and the 1600 level, accompanied by high volumes, seemed to stall a typical sharp and swift bear market rally. Note the positive divergences in RSI and slow stochastic, which touched higher tops in Jun ‘12. That may lead to a continuation of the rally. However, volumes have started sliding and technical indicators are looking weak.

RSI is struggling to cross its 50% level. MACD is negative and above its signal line, but its upward momentum has slowed down. Slow stochastic has dropped from its overbought zone and quickly descending towards its 50% level.

Once the ‘death cross’ of the 50 day EMA below the 200 day EMA technically confirms a bear market, it may be prudent to sell on rallies or stay away. Gold’s price appears to be consolidating within a large ‘descending triangle’ pattern on the 1 year chart (not shown). A break down below 1520, which is the lower edge of the triangle, can drop gold’s price to 1200. There are no certainties in technical analysis, but one should be aware of the possibilities. If you are a die-hard gold bull, maintain a strict stop-loss at 1520.

Silver Chart Pattern

Silver_Jun1112

The bulls tried to engineer a rally on silver’s price chart, but failed to climb past the falling 50 day EMA. Positive divergences in all three technical indicators, which touched higher tops in Jun ‘12 as silver’s price touched a lower top, may help to extend the rally. But not for long.

Technical indicators are beginning to look bearish. RSI is below its 50% level, after a brief foray into bullish zone. MACD is negative and rising above its signal line, but its upward momentum is slowing down. Slow stochastic turned back before reaching its overbought zone, and is about to drop below its 50% level.

A bearish ‘descending triangle’ seems to be forming on silver’s 1 year chart (not shown). A strict stop-loss should be maintained by silver bulls at 26, which is the lower edge of the triangle.

4 comments:

manya said...

in $ terms gold price is near 52w low n indian mkt gold price is almost 52w high. y der is so much price difference ?

Subhankar said...

It is due to the age-old problem of supply and demand. Demand for gold far exceeds domestic supply. So gold has to be imported, and is subject to import duties. The problem has been compounded by a 25% depreciation in the value of the Rupee against the US Dollar.

Here is the math (without taking import duty into account):

When gold hit $1900 per oz. the Indian Rupee equivalent price was 1900x45=85500; now gold is at $1600 per oz., but the Indian Rupee equivalent is 1600x56=89600.

(We face a similar problem with our oil imports.)

manya said...

subhankar sir thx for ur rp.so does it mean that in indian market gold is undervalued?

Subhankar said...

Good question!

Here is a link where you can find out the real value of gold:
http://www.gold-traders.co.uk/calculator/