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Tuesday, August 28, 2012

Gold and Silver chart patterns: an update

Gold Chart Pattern

Gold_Aug2712

Two weeks back, gold’s price was struggling to cross its 200 day EMA. But the 20 day EMA had crossed above the 50 day EMA after 4 months – which was a bullish sign in the short-term. Technical indicators were also bullish, though they were showing signs of weakness.

Positive noises emanating from the US Fed provided the trigger for the bulls to go on a buying spree. Bears were caught off-guard and covered their shorts – adding to the upward momentum. Gold’s price quickly crossed above its 200 day EMA and the resistance level of 1640 to touch an intra-day high of 1680. But it formed a ‘reversal day’ pattern (higher top, lower close).

Such a sharp rise is often followed by a correction or a pullback. The dip can be a buying opportunity. Gold’s price correction from the Aug ‘11 top to the Jun ‘12 bottom was a little less than 20%. On the longer-term weekly gold chart (not shown), the 20 week EMA had merged with the 50 week EMA for the past month, and now both EMAs have started moving up with gold’s price trading above them. These are bullish signs.

Technical indicators are bullish, but correcting overbought conditions. A ‘golden cross’ of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

Silver Chart Pattern

Silver_Aug2712

Silver’s price has risen just as sharply as gold’s price to cross above its 200 day EMA and the psychological 30 level. But the cross above the long-term moving average has not been quite as convincing yet.

Technical indicators are looking overbought, and may be foretelling a correction or pullback to the 200 day EMA. On the longer-term weekly chart (not shown), silver’s price has crossed above its 20 week EMA but is facing resistance from its 50 week EMA.

A bit of correction or consolidation will enhance the sustainability of the current rally, which is showing very good volume support.

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