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Tuesday, July 21, 2015

Gold and Silver charts: an update

Gold chart pattern


The daily bar chart pattern of gold collapsed on heavy volumes after breaching the previous support level of 1140, and formed a ‘panic bottom’ at 1080. A ‘dead cat bounce’ took gold’s price to the 1100 level, but the worst may not be over.

A ‘panic bottom’ seldom holds. That means the Jul 20 ‘15 low of 1080 is likely to be breached. Gold’s price has the next support at 1000. What if 1000 level gets breached also? The next support is at 700 – but the probability of going down there is low.

Why the sudden price crash? Some blamed it on the strong US Dollar index. Others pointed to rallies in global stock markets. Dumping by Chinese investors was another reason put forward. Technically, 1180-1200 was a strong support zone. Once that zone got breached, a drop to 1000 has been on the cards.

All three technical indicators are inside their oversold zones, but two of them – MACD, Slow stochastic – are showing positive divergences by touching higher bottoms than those touched in Mar ‘15.

Any attempt at a rally is going to invite bear selling. So, continue to avoid bottom fishing.

On longer term weekly chart (not shown), all three weekly EMAs are moving down, and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators are in bearish zones, but MACD and RSI are showing positive divergences by touching slightly higher bottoms.

Silver chart pattern


The daily bar chart pattern of silver touched a low of 14.50 - breaching the high volume ‘panic bottom’ of 14.60 touched on Jul 7 ‘15, and proving the market adage that ‘panic bottoms seldom hold’.

Note that silver’s price had bounced up sharply after touching the ‘panic bottom’, and crossed above its falling 20 day EMA on Jul 13 – only to lose steam near its falling 50 day EMA. It has been all downhill since then.

Daily technical indicators have entered their respective oversold zones. RSI is showing positive divergence by touching a slightly higher bottom, but don’t expect a big price recovery.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones.

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