Gold and Silver updates
Gold duly broke lower, considered the greater probability in the last update, and it is now close to testing the strong support at its long-term trendline and its 200-day moving average, which just happen to be at almost the same point, about $412. At this juncture it is worth keeping in mind that traders should make some allowance here - failure to do so could lead to being seriously whipsawed. Thus it would be wise not to write off the long-term uptrend and expect a more drawn out correction unless the price breaks more than 3% below the lower channel line, meaning more than $12 below it, or below $400, which price would in any case be expected to provide round number support. This is not a fudge - prices do sometimes push a little way out of trend channels which then require adjustment - this is what happened with the dollar a few months ago, causing considerable consternation in some quarters.
From the dollar chart it does look like $400 could well be tested shortly. The dollar broke significantly above 84 on the index on Friday, after having stalled out beneath resistance at this level for almost a month. While this could have been a "false move" it doesn't look like it, rather it looks like it will run at least to resistance in the 85 area, and possibly higher to the next resistance level above 87. Note that if the latter is the case it will mean the price marginally breaking out of its long-term downtrend, but as with gold, such a breach should not be regarded as a conclusive breakout unless it takes the index more than 3% above the upper trendline. The 200-day moving average is currently a little above the long-term downtrend line and is now at about 86.5.
Fortunately we have a clearly defined intermediate downtrend channel in gold, contact with which led me to predict a sharp move last week. I say fortunate because the fact that it is clearly defined means that a break above it will be an early signal that the downtrend has run its course and a new intermediate uptrend is in the offing.
The downside for gold is not now viewed as great and it is expected to put in a low somewhere between the present level and $400. However $400 is being somewhat accommodating with respect to the long-term trendline breach, so this level really must hold - if it doesn't a longer deeper correction to the entire bull market to date will be on the cards.
Considering what happened to gold and the dollar last week silver held up well, finding support at its 200-day moving average and a little above an important long-term trendline. However, it wouldn't take much more pressure for this support to crack leading to a swift move down towards support in the $6 area. Silver is a speculative, volatile and possibly highly manipulated market, for this reason, as previously stated, trendlines are not viewed with the same reverence as would otherwise be the case - in other words, failure of this trendline would not necessarily mean "game over." What will be important to observe should it break down towards $6, is where gold is at that time - if gold has succeeded in remaining above $400 and goes on to stabilize above this level, it will be good news for silver.
It will of course be positive if silver can hold up above the long-term trendline, and a break above the 50-day moving average, which is currently pressuring the price lower, and the resistance around $7 would clearly be bullish developments. However, with the dollar looking set to move higher short-term this looks unlikely in the near future.