Gold and Silver Market Updates
Despite a number of adverse technical indications, gold looks set to break strongly higher next week.
While silver broke spectacularly higher last week, partly in response to marked weakness in the dollar, gold did not, and was kept in check by resistance approaching its early February highs. Other factors that contributed to restraining gold were the current very large gap between its 50 and 200-day moving averages, and the fact that it is still near the return line of its long-term uptrend channel, shown on the 5-year chart below. However, a combination of continuing strength in silver and a weakening dollar are expected to result in gold overcoming these difficulties, and, since many market players are not positioned for this, the resulting breakout could be quite dramatic, and result in strong gains in gold stocks.
On the plus side, gold is not very overbought on a short-term basis, as revealed by the RSI and MACD indicators on the 1-year chart. The latter has given a buy signal by turning up and rising through its moving average. The MACD histogram, the shaded area around the zero axis, is also looking positive.
The 5-year chart shows a big reason for gold dragging its feet compared to silver - it has been struggling with the heavy resistance at the return line of its long-term uptrend channel. Should it break clear above the return line in the near future, a spectacular vertical ascent will become a real possibility.
What a superb performance by silver last week - silver investors really can't ask for better technical action than this, for while it rose a lot on Thursday, the move was not of the silly proportions that would be expected to provoke a significant reaction. In the last update we looked for silver to outperform gold - and it has.
We can examine the fine uptrend in silver in detail on the 1-year chart. There is no sign of weakness here and no reason to sell, except that traders may want to take profits when the price hits the upper return line of the channel, depending on other factors prevailing at the time, and a break of the lower line of the channel will obviously be a sell signal. Otherwise, investors should stay long.
The remarkable strength of the advance on Thursday - which was a breakout, not a blowoff move - signals that the uptrend may well be set to accelerate, and thus, it may not make sense for traders to automatically sell silver when the price contacts the upper return line of the channel, as there is a good chance that it will break above it and arc higher, possibly entering a period of near vertical ascent.
The increasingly large gap between the 50 and 200-day moving averages reminds us that no uptrend lasts for ever, and we should continue to keep an eye on this gap whatever happens, as it usually a big help in deciding when to hit the exits.
is an English technical analyst, holding a diploma from the Society
of Technical Analysts, Cambridge, England. He lives in Chile.
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