Precious metals continue to under-perform the broad market. This year’s heavy volume breakdown below key support has many investors and trader’s spooked creating to a steady stream of selling pressure for gold and silver and bullion stocks.
While the technical charts are telling me prices are trying to bottom we must be willing to wait for price to provide low risk entry points before getting involved. Precious metals are like any other investment in respect to trading and investing in them. There are times when you should be long, times to be in cash and times to be short (benefit from falling prices). Right now and for the last twelve months when looking at precious metals cash has been king.
In 2008 we had a similar breakdown in price washing the market clean of investors who were long precious metals. If you compare the last two breakdowns they look very similar. If price holds true then we will see higher prices unfold at the end of 2013.
The key here is for the price to move and hold above the major resistance line. A breakout would trigger a rally in gold to $2600 – $3500 per ounce. With that being said gold and silver may be starting a bear market. Depending what the price does when the major resistance zone is touched, my outlook may change from bullish to bearish. Remember, no one can predict the market with 100% accuracy and each day, week and month that passes changes the outlook going forward.
Gold Daily Technical Chart Showing Bottoming Process:
Major technical damage has been done to the chart of gold. Gold is trying to put in a bottom but still needs more time. I feel gold will make a new low in the coming month then bottom as drawn on the chart below.
Silver Daily Technical Chart Showing Bottoming Process:
Silver is in a similar as gold. The major difference between gold and silver is that silver dropped 10% early one morning this month which had very light volume. The fact that silver hit my $20 per ounce level and it was on light volume has me thinking silver has now bottomed.
But, silver may flounder at these prices or near the recent lows until its big sister (gold) puts in a bottom.
Conclusion:
Precious metals continue to be trending down and while they look to be trying to bottom it is important to remember that some of the biggest percent moves take place in the last 10% of a trend. So we may be close to a bottom on the time scale but there could be sharply lower prices yet.
The time will come when another major signal forms and when it does we will be getting involved. The exciting this is that it could be just around the corner….
-Umesh Shanmugam(Purely my view)