Charts Hold Key for Silver & Gold

December 4, 2013 at 09:03

truthing

Gold and silver are no longer on most investors’ minds after falling for much of the past year, having been replaced by “hot” tech stocks, Tesla, Bitcoin and other investment fads du jour. As a contrarian investor, my interest in gold and silver is increasing as mainstream interest wanes, but I am actively watching their charts and other macroeconomic information to determine the next best buying opportunity.

Precious metals have fallen over the past month as investors continued to price in an upcoming tapering of the U.S. Federal Reserve’s quantitative easing (QE) monetary stimulus program that helped to drive a bull market in gold and silver in the wake of the global financial crisis. As economic numbers in the U.S. continue to improve (due to the Bubblecovery, as I believe), the Federal Reserve is planning to reduce its monetary support for the economy.

Strong recent economic data has caused traders to increase their bets that the taper will be announced at the next Fed meeting on December 17th and 18th, though the consensus is that the taper will be announced at the next Fed meeting in March.

Technical analysis or chart analysis is helpful in determining market direction in these types of scenarios. According to their charts, gold and silver are currently at important make-or-break points that indicate that a large move is likely to occur in the next few months, with a taper-related decision being the most probable catalyst.

Gold is sitting directly above its psychologically important $1,200 support level that stopped this past Spring’s bear market in its tracks. If this support level is broken on a closing basis, gold’s bear market will probably begin another leg down that may take it to the next important support level at $1,000. The ultimate taper announcement is the most obvious catalyst that may cause this level to break.

In the short run, however, gold is technically oversold and may bounce off of its $1,200 support to rally up to its overhead resistance level, which is the down-sloping trendline. The likeliest catalyst for a short-term bounce is the passing of the December Fed meeting without a taper announcement.

Though less likely than other scenarios discussed here, there is a possibility that the Fed may hold off on tapering for longer than expected and/or decide to taper less aggressively than expected, which could cause gold to break above the two downward sloping resistance lines, leading to another bull run.

Gold Chart

 

Silver’s chart pattern is very similar to gold, and the scenarios discussed in the gold chart analysis apply equally to it.

Silver Chart

Gold mining stocks – which tend to lead gold and silver prices – recently broke below their five-month old support level to plunge to new lows, giving further credence to the intermediate-term bearish case for precious metals.Goldstocks

I am a proponent of gold and silver in the longer run due to ongoing currency debasement and the coming economic crisis that I foresee (which I don’t expect to happen just yet), but I prefer to avoid buying ahead of near-certain monetary tightening and at a technical make-or-break point such as this. If gold and silver can manage to break above their downward sloping resistance lines, however, I would consider taking on a long position as a trade.