Gold and Silver Market Updates
Gold is in a classic buying
area, it's recent sharp decline having halted exactly at its
200-day moving average and in a zone of strong support. We had
expected it to drop to this zone, but to take probably a month
or two to do so, instead it has arrived here in the space of
a couple of weeks. Many investors have understandably been rattled
by the speed of this descent, especially those who read a recent
article saying that gold had a parabolic rise, has topped out
and will now have an equal parabolic descent. Those who read
this article and perhaps believed it will no doubt be relieved
to learn that the same author posted an article last October
calling a top in gold $250 below the recent peak. Gold did have
a parabolic ascent, but not a large one as we will see lower
down the page when we examine a very long-term chart, and it
has now corrected the excess resulting from that rapid advance.
On our 1-year chart we can see how the final capitulative selloff does not look so alarming with the benefit of a couple of days of stabilisation and recovery behind us. Just looking at this chart gold appears to be at the absolute classic "buy spot", something you normally have to wait months for. On the face of it it has it all - it has reacted back to its 200-day moving average, and it is way below its 50-day moving average, deeply oversold and is currently just above a zone of strong support. It should be pointed out, however, that it is not likely to go straight back up from here. The vicious plunge last week took its toll on sentiment and so gold is likely to thrash around for a while forming a base area, probably between about $540 and $590, which may continue for some weeks or even a month or two, which will will allow the 50-day moving average to drop down towards the 200-day. Any retreat towards $550 short-term will be regarded as a major buying opportunity, which will have the advantage that a fairly close stop can be employed to limit downside.
Now to examine the so-called
parabolic rise in gold, and to put in perspective, and there
is no better way to do this than by looking at a very long-term
chart for gold going way back to the early 70's. On this chart
we can that the recent strong rise in gold looks modest compared
to the spike of the late 70's, and when you factor in inflation
and therefore take on board the fact that gold would have to
attain a price of $2000 an ounce to equal 1979's peak, you quickly
realize that any assertion that gold's recent peak was an unsustainable,
unexceedable extreme is nonsense. Sure, it MAY have topped out,
if the high interest rate and dollar scenario becomes reality,
and we have taken account of this, but the recent peak certainly
doesn't look that wild on this chart - it only got $220 above
its 1983 and 1987 peaks at $500!
There is little need to write
much for silver, as most of the arguments pertaining to gold,
and described in the Gold Market update, above, apply
in equal measure to silver.
Traders should keep in mind
that there is one scenario, as with gold, that could knock silver
down further, and that is the situation where interest rates
get out of control and rise sharply, probably leading to a strong
rise in the dollar. For this reason it is considered wise to
place stops, say below $9. You could get whipsawed out doing
this, of course, but there is always the option to get back in
again if the picture subsequently improves, and you won't have
missed too much.
is an English technical analyst, holding a diploma from the Society
of Technical Analysts, Cambridge, England. He lives in Chile.
Copyright ©2003-2011 CliveMaund. All Rights Reserved.
Charts courtesy of StockCharts.com.