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Tuesday, September 25, 2012

Gold and Silver chart patterns: an update

Gold Chart Pattern

Gold_Sep2412

The one year daily bar chart pattern of gold shows a ‘U’ shaped recovery with almost a vertical rise during the month of Sep ‘12. Such sharp rises are difficult to sustain for long. Gold’s price tested its Feb ‘12 top and has been consolidating within a rectangular band between 1760 and 1780.

Usually, a rectangular consolidation is a continuation pattern. That means gold’s price should break out upwards to cross above the 1800 level and test its all-time high of 1925. However, all three technical indicators are correcting from overbought conditions. Also, gold’s price and its 20 day EMA have moved too far above the 200 day EMA.

A correction down to 1740 is a possibility. Note that gold is in a long term bull market, so dips can be used to add.

Silver Chart Pattern

Silver_Sep2412

The ‘golden cross’ of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market in silver’s one year daily bar chart. An ongoing rectangular consolidation between 34 and 35 should be followed by an upward break out.

However, silver’s price rose too fast, and technical indicators remained overbought for a month. The sideways consolidation has corrected overbought conditions. Silver’s price may dip to the 33 level before the up move resumes. A test of the Feb ‘12 top of 37.50 is likely.

In longer-term weekly chart (not shown), the 20 week EMA is yet to cross above the 50 week EMA, but it should happen soon enough. That will technically confirm a return to a long-term bull market.

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