Tuesday, March 4, 2014

Gold and Silver charts: bulls gaining control?

Gold Chart Pattern


For the first time in more than a year, the daily bar chart pattern of gold crossed above its 200 day EMA last week to a 4 months high – only to form a ‘reversal day’ pattern (higher high, lower close) on Wed. Feb 26 and slip below its long-term moving average.

All three technical indicators were inside their overbought zones, with RSI and Slow stochastic forming ‘double top’ reversal patterns. Just when it appeared that the 2 months long rally was coming to an end, Russia ‘invaded’ the Crimea region of Ukraine sending global stock markets crashing down.

Gold’s price soared above the 1350 level into bull territory. Is the bear market finally coming to an end? Or is it another bear market rally that will trap unwary bulls? Let us look at some of the technical signals.

All three technical indicators are in their overbought zones, and showing negative divergences by failing to touch new highs with gold’s price. A pullback towards the 200 day EMA is likely. Will the pullback be a buying opportunity? Depends on your investment outlook and whether gold’s price manages to remain above its 200 day EMA or not.

The 20 day EMA has crossed above its 50 day EMA and both are rising; the 50 day EMA has formed a bullish ‘rounding bottom’ pattern. These are bullish signs. But till the 50 day EMA can cross above the 200 day EMA (‘golden cross’), gold will technically remain in a bear market.

In case gold’s price bounces off its 200 day EMA and moves higher, expect strong resistance from the zone between 1425 and 1525. Bulls have their work cut out.

On longer term weekly chart (not shown), gold’s price is facing resistance from its falling 50 week EMA and is trading 40 points below its sliding 200 week EMA. Bears may appear to be losing control in the near term, but the long-term bear market is still intact.

Silver Chart Pattern


The daily bar chart pattern of silver closed above its 200 day EMA on Mon. Feb 24 for the first time in more than a year. Bears used the opportunity to press sales. Silver’s price dropped to the 21 level, where it received good support from its rising 20 day EMA.

All three technical indicators have corrected from overbought conditions but remain in bullish zones. Bulls may try to break out above the 200 day EMA once again.

On longer term weekly chart (not shown), silver is trading below its 50 week and 200 week EMAs in a long-term bear market.

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