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Tuesday, August 14, 2012

Gold and Silver chart patterns: bulls try to fight back but bears rule

Gold Chart Pattern

Gold_Aug1312

For the past three weeks, the closing chart pattern of gold made two attempts to climb past the 200 day EMA. On both occasions, bears overwhelmed the bulls with their selling. Gold’s price has been in a sideways consolidation mode since touching a low of 1540 in May ‘12.

Technical indicators are bullish, but showing signs of weakness. RSI is above the 50% level but falling. MACD is positive and above its signal line, but the histogram is falling. Slow stochastic has dropped down after touching the edge of its overbought zone.

The good news for the bulls is that the 20 day EMA has crossed above the 50 day EMA after spending 4 months below it. The bad news is that gold’s price is still trading below its falling 200 day EMA. In longer-term chart (not shown), gold’s price has been consolidating within a large ‘descending triangle’ pattern, since forming a double-top reversal pattern a year ago.

A fall below 1540 will be very bearish. On the upside, only a convincing move above 1640 will form a bullish pattern of higher bottoms and higher tops. Savvy traders can trade the range between 1560 and 1620.

Silver Chart Pattern

Silver_Aug1312

In the past three weeks, the closing chart pattern of silver made two abortive attempts to move above the 50 day EMA. On the first occasion, it retreated hastily in the face of strong bear selling. On the second occasion, it formed a small rounding-top pattern and dropped down.

Technical indicators are bullish, but upward momentum is dissipating. RSI is above its 50% level but falling. MACD is barely positive and above its signal line. Slow stochastic has slipped down from its overbought zone.

Volumes have been strong on down days (note the red volume bars). Silver is trading well below its falling 200 day EMA, and is in a bear market. Silver’s price has been in a 15 months long down trend since touching a peak back in Apr ‘11. Only a convincing move above the 200 day EMA may change the trend. A fall below 26 can open up much lower levels.

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