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Tuesday, October 1, 2013

Gold and Silver charts: in long-term bear grips

Gold Chart Pattern

Gold_Sep3013

The long-term weekly bar chart pattern of gold clearly shows a bear market in progress. After correcting from its life-time high of 1900 odd in Sep ‘11, gold’s price entered a sideways rectangular consolidation zone between 1525 and 1800 for the next 18 months.

Rectangular consolidations tend to be continuation patterns. The high volume downward break below 1525, followed by a drop below the 200 week EMA in Apr ‘13 indicated that the long bull market in gold was over. Gold’s price dropped all the way below 1200 before bouncing up strongly to test its 200 week EMA.

Bears used the bounce to sell. Gold’s price has resumed its down move, and is trading below all three weekly EMA. The 50 week EMA is falling towards the 200 week EMA. A cross below will technically confirm a long-term bear market. The confirmation may be just a matter of time.

Weekly technical indicators are looking bearish. Some more downside is likely. MACD bounced up from the edge of its oversold zone, but remains negative. RSI moved up from its oversold zone, but failed to climb above its 50% level. Slow stochastic has dropped from its overbought zone, and falling towards its 50% level.

How much lower can gold’s price fall? Apparently, the current cost of producing an ounce of gold is about 1000. So, it is unlikely that gold’s price will fall below 1000. Buying should emerge in the zone between 1000 and 1200. That doesn’t mean another bull market will start immediately. Bear markets take a long time to play out.

Silver Chart Pattern

Silver_Sep3013

The long-term weekly bar chart pattern of silver is in a long-term bear market that was technically confirmed by the ‘death cross’ of the 50 week EMA below the 200 week EMA in Jul ‘13.

After falling below the 22.50 level, weekly technical indicators became oversold, and remained so for almost 3 months as silver’s price continued its fall down to touch the 18 level in Jun ‘13. This is an example of how markets can remain oversold (or overbought) for long periods.

A technical bounce, supported by good volumes took silver’s price above its falling 20 week EMA to 25, but couldn’t quite test its 50 week EMA. Bears used the bounce to sell. Silver’s price has dropped below 22.50 once again, and is trading below all three EMAs.

Weekly technical indicators are looking bearish, but not oversold. That means lower levels are likely. Global economic and industrial revival should help to stabilise silver’s price, because silver has industrial use (unlike gold). But that seems some distance away.

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