Tuesday, July 9, 2013

Gold and Silver charts: sliding lower in bear markets

Gold Chart Pattern


Three weeks back, gold’s 6 months daily bar chart was consolidating sideways in a bear market and had closed a little below the 1400 level. The following warning was given to investors of the yellow metal: “A similar sideways consolidation in a price range between 1550 and 1625 during Feb-Mar ‘13 had ended with a high volume ‘panic bottom’ pattern. Since a ‘panic bottom’ seldom holds, gold’s price is likely to seek levels lower than its Apr ‘13 low.”

Not only did gold’s price fall below its Apr ‘13 low, it dropped below the first lower target of 1250, and briefly below the psychological 1200 level before weakly bouncing up. All three daily EMAs are falling, and gold’s price is trading below them – a classic bear market in progress. Is it game over for bulls? Looks that way.

Both MACD and RSI are just above their oversold zones, but are showing positive divergences by touching slightly higher bottoms in Jun ‘13 than the ones touched in Apr ‘13 while gold’s price dropped lower. Slow stochastic is not confirming the positive divergence. So, a rally can be ruled out. Some consolidation is possible before the next down move.

In the longer-term 3 years weekly bar chart (not shown), the 200 week EMA has started to fall and the 20 week EMA has just crossed below it. If the 50 week EMA also falls below the 200 week EMA – it is showing every sign of doing so – the gold bull market may be well and truly over.

Silver Chart Pattern


The 6 months daily bar chart pattern of silver dropped below the target level of 20 last month, and has stayed below since then. After briefly dropping to 18, there was a brief bounce up towards 20 on decent volumes. But the bears used the opportunity to sell.

The gap between silver’s price and its falling 200 day EMA is widening by the day. Such a technical set-up usually precedes a rally. Positive divergences visible on the MACD and RSI indicators, which touched higher bottoms in Jun ‘13 while silver’s price fell lower, is another bullish sign.

However, bullish signs deep inside a bear market should be traded cautiously. What appears to be a rally can turn into a sideways consolidation, followed by another drop.

In the longer-term 3 years weekly bar chart (not shown), the 200 week EMA is falling and the 50 week EMA is about to cross below the 200 week EMA. That will technically confirm the beginning a long-term bear market. However, deeply oversold weekly technical indicators may lead to a sharp counter-trend rally.

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