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Tuesday, November 19, 2013

Gold and Silver charts: an update

Gold Chart Pattern

Gold_Nov1813 

The long-term weekly closing chart pattern of gold (above) should clear any lingering doubts about which direction gold’s price is headed. After crossing the 1900 level to touch its life-time peak back in Sep ‘11, gold’s price consolidated in a rectangular band between 1800 and 1550 for the next 18 months.

Rectangular consolidation patterns tend to be continuation patterns, with measuring implications. Since gold’s price dropped into the pattern from above, the eventual break down below 1550 was no surprise. The long duration of consolidation ensured that the down move below the rectangle was fierce.

The minimum downward target of gold was 1300, calculated thus: Height of rectangle = 1800 – 1550 = 250; drop below rectangle = 1550 – 250 = 1300. Note that the Jun ‘13 closing low was almost 100 points lower.

All three weekly technical indicators reached oversold conditions together. The subsequent sharp upward bounce took gold’s price above its falling 20 week EMA, but failed to reach the 200 week EMA (which is the long-term trend decider).

All three weekly EMAs are falling and gold’s price is trading below them. The 50 week EMA, which is only 5 points above the 200 week EMA, will soon cross below it (‘death cross’) and technically confirm what is already apparent from gold’s price chart – a long-term bear market.

Technical indicators are bearish but not oversold – though Slow stochastic has just entered its oversold zone. The Jun ‘13 low is likely to be breached.

(Note: Indian investors who love to invest in gold may want to look at the chart below to find out what kind of a price premium they are paying.)

Silver Chart Pattern

Silver_Nov1813 

The long-term weekly closing chart pattern of silver followed gold’s price pattern, with one notable exception. The ‘death cross’ of the 50 week EMA below the 200 week EMA occurred 4 months ago. The 200 week EMA has been forming a bearish ‘inverted saucer’ pattern.

Weekly technical indicators corrected oversold conditions but are looking bearish again. The Jun ‘13 low may get breached soon. Silver finds industrial use – unlike gold. The US and Eurozone economies need to show some perceptible growth for silver’s price to regain some of its lost glory.

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