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Gold and Silver

Technical observations of

Bob Hoye
Institutional Advisors
Sep 8
, 2006

While the gold price has failed to have the downside correction (with a low RSI) we've been hoping for as a new entry point this summer, the open interest in the futures market suggests that a good cleanout in positions has occurred and an interim rally is possible.

The gold market has seen a shift in open interest in the past few weeks. The decline in the net long position of non-commercials to 87,716 contracts together with the concurrent decline in the net short position of commercials to only 117,245 contracts puts the market in a mode from which it can easily rally for two to four weeks.

Both COT readings are close to the lowest levels seen since September 2nd of last year. The RSI of the COT data are also generating levels seen as the gold market came to life on the upside eleven times in the past six years.

The mining stock indices (HUI, XAU & GDX) have been leading the gold bullion on the upside with the help of silver and the base metals. Until there are signs of failed leadership by the stocks we'll look for the rally to be sound.

Bull markets in silver have a tendency to produce good downside corrections (i.e. buy points) during September-October and progress from there higher through year-end. These corrections are preceded by a bearish divergence in the CCI(20). There are currently no signs of divergence into the current high so the market is free to pullback and then make a test of this or a higher high through the month. The correction can be anticipated to produce a CCI(20) reading below -150 as a lower risk entry point later this month or October.

-Bob Hoye
Institutional Advisors


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