Tuesday, March 5, 2013

Gold and Silver charts: back in bear markets

Gold Chart Pattern


The one year daily bar chart pattern of gold is back in a bear market. The 50 day EMA has crossed below the 200 day EMA (‘death cross’). All three EMAs are falling, and gold’s price is trading below them. A test of the previous low of 1525 – touched in May ‘12 – is likely.

Gold’s price has been consolidating in a rectangular band between 1525 and 1800 since Sep ‘11. The longer the consolidation, the stronger will be the eventual move out of the rectangle. But in which direction?

Rectangular consolidations tend to be continuation patterns – though they can also be reversal patterns. So, the eventual break out can be in either direction. If the price breaks out above 1800, it may touch 2075; if it falls below 1525, it can fall to 1250.

Daily technical indicators have corrected from oversold conditions, but look bearish. MACD is moving sideways below its falling signal line, and is just above its oversold zone. RSI and slow stochastic briefly emerged from their oversold zones, but are ready to drop back in.

The spectacular rise in gold’s price was fuelled by fears of a break down of Eurozone and US economies. Those fears have subsided, thanks to massive quantitative easing programmes. Longer-term weekly chart (not shown) is still in a bull market, as gold’s price is trading well above its rising 200 week EMA.

Silver Chart Pattern


The one year daily bar chart pattern of silver has fallen back into a bear market. All three EMAs are falling, and silver’s price is trading below them. A test of the previous low of 26 – last touched in Jun ‘12 – is on the cards.

Daily technical indicators are looking bearish. MACD is falling below its signal line in negative territory. RSI is resting on the edge of its oversold zone, after briefly emerging out of it. Slow stochastic has dropped back inside its oversold zone.

However, all three technical indicators are showing positive divergences by touching previous bottom in Dec ‘12, while silver’s price touched a lower bottom. An upward bounce towards the falling 20 day EMA is likely. Bears may use the bounce to sell.

On longer-term weekly bar chart (not shown), silver’s price is just above its 200 week EMA. A drop below 26 can put the long-term bull market under threat.

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