This essay is based on
the Premium Update posted November 20th, 2009
Gold has been moving
parabolically in the past few months, but is this the final run up? I
seriously doubt it, because the levels that I expect gold and silver to
achieve (mentioned in the previous Premium Update) at the end of this bull
market are still very far from where we are today.
Please keep in mind
that the road to the top will not be a straight line, and since that is the
case it makes sense to take advantage of the inevitable corrections. Let's
examine the chart (charts courtesy of http://stockcharts.com) of gold to check if
we are close to another buying or selling opportunity.
Once gold broke out of
its resistance line, gold moved much higher (as suggested several days ago)
and it has been moving in a parabolic fashion. This type of upswing is
usually very profitable for those holding the metal, but confusing for those
trying to time the top. This time is no different, as the short-term chart
doesn't provide us with any reliable targets for this rally. On the other
hand, gold appears to be the only part of the precious metals market that is
really thriving. Such divergences are not really encouraging for anyone long
gold, or any other precious metal, especially given their poor performance
Let's turn to silver
and check what is the white metal likely to do next.
Silver has more than
doubled in the past year, and it is finally very close to its 2008 highs.
However, before these resistance levels are reached, silver much first breach
through the rising red line that has proven a strong resistance many times in
the past. The Stochastic Indicator is currently above the 80 level, which
means that a top might be put here (it is a necessary condition, but not a sufficient
one). The RSI is not in the "extreme overbought" territory yet, but
it is now very close to it.
While it may make sense
for super-aggressive speculators to wait for the final signal, from my point
of view it seems that most Investors would be better off closing their
positions a little earlier. The sell-offs in silver are usually very volatile
and take the metal much lower in a short time frame, so unless you can
monitor market almost constantly and sell during the early part of the plunge
(its hard to get your orders filled during that time). Let's take a look at
silver from the short-term perspective to see if we it confirms the above
The short-term silver
chart confirms the points raised above. Apart from the fact that silver is
now near the short-term resistance level (thin blue line), the additional
signal comes from the volume. Please note that the volume was much higher on
Tuesday, when silver declined than it was the case on Wednesday, when it
The seasonal tendencies
provide us with additional details. This time silver is already closer to the
"top" area than it is to the "bottom" one. While the next
vertical red line (topping area) is "scheduled" on second week of
December, it is certainly possible for silver to top sooner. Please keep in
mind that these tendencies have been very reliable, but often on a
"top/bottom in near" instead of exact dates. So, if the top is to
be reached soon (or it has just been reached), it would not invalidate the
Since this week's
Premium Update includes the analysis of gold in currencies other than the
U.S. Dollar, I believe it is a good idea to feature also similar analysis of
the silver market.
The chart of silver is
not that bullish, as it is the case with gold, because there is no visible
rising trend channel. The late-February - today consolidation may be seen as
flag pattern, which means that the rally following the breakout is likely to
take the ratio much higher - taking into account the size of the October-2008
- February-2009 move preceding the consolidation. In this case the target would
be above 0.75 - above the 2008 high. Naturally, I expect this to mean higher
silver prices in USD as well.
However, this is not
likely to take place immediately, as the ratio has just reached one of the
important resistance levels - the July 2008 high. This means that we may need
to see silver trade sideways before a more significant move. Today's price
action seems to confirm this.
Moving on to the
situation on the Dollar market, let's begin with the long-term chart.
There are no big
changes on the above chart since I featured it in the October 30th Premium Update, but I decided to provide you
with this chart anyway, as it helps to put things into proper perspective.
The size of the current downswing is still not very big when one analyzes it
from the very-long-term perspective, so I don't think that a rally from here
is imminent. Consequently, gold and silver may rally in the long run despite
their short- or even medium-term weakness.
The situation on the
USD Index evolves in a predictable fashion. So far, the USD Index has been
trading lower between two blue borders of the trading channel. The seasonal
tendencies suggest that the U.S. Dollar is likely to put a top (more likely)
or a bottom in the first half of December. This could mark the end of the
correction in the precious metals, or at least the end of the first part of
the correction. I will let you know, once we get more information.
Summing up, the bull market in the
precious metals - including the silver market -is healthy, but it seems that
the most probable scenario is the short term is a consolidation. The analysis
of the cyclical tendencies in silver and the USD Index suggests that the
first half of the December will include an important extreme for these
markets. I will leave additional details for my Subscribers. I encourage you
to join us today - this week's Premium Update includes detailed
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Thank you for reading.
Have a happy Thanksgiving holiday weekend and a profitable week!
by Przemyslaw Radomski