It seems clear to many investors that the price movements within the precious metals sector are becoming more and more violent every day.
What does this mean? Is it the end of the bull market in this sector, or simply the end of this correction? Personally, I think the charts are telling us that this is the beginning of the end of the correction. Currently, a huge fight is taking place between the bulls and the bears on a daily basis. As soon as you think the bears are winning, the bulls are hitting back as hard as they can.
These daily battles are confusing and are taking their toll on the majority of metals' investors. This has caused a lot of investors lose hope. But you can hardly blame them when we see that a lot of the junior mining companies are 30-70% below their highs while gold and silver are trading near record levels. Some of these stocks are being slaughtered and blood is running in the streets.
Whatever the eventual outcome of this daily battling, the only thing that truly counts is the bigger picture, although I know that it’s difficult to keep this in perspective during volatile intraday moves. It helps to recognize that much of what you see and read in the papers and on the internet is information that will distract you from this bigger picture. The easiest thing to do when your vision gets clouded is to look at a long term chart and study carefully what you see before you.
To help you get things back in perspective, this issue will contain both weekly and daily charts of Gold and Silver so that you can see more clearly with your own eyes what is happening in the larger scheme of things. Additional charts of the Dollar, Oil, and Copper, along with detailed fundamental and technical analysis of over 20 mining companies are available for premium subscribers.
As long as the big picture remains solid, it’s just a matter of time before the mining companies start to make up for lost ground.
All charts are courtesy of Stockcharts.com
The big picture is showing us that the current correction is just that, a correction in the long uptrend of gold’s rise. We have seen these corrections before, and although they can be very nasty, they are essential to the natural course of a long term bull market. As they say, a bull market must climb a wall of worries.
The chart is showing us some important levels to take into account, the 34 w. MA, the current support around $850, the support just below $750, and the magenta channel. The uptrend will stay intact unless Gold drops out of the channel. Should this happen, the pattern of higher highs and higher lows will be threatened, and then we will have to determine if a downtrend has begun, or merely sideways consolidation.
For now the long term trend is in no danger at all!!
Last month we mentioned that the correction could possibly take the shape of an ABC pattern, and in this months update we see that this expectation remains valid. We are witnessing the wave C of a black ABC wave down towards the support zone. The only question at this time would be if the C bottom is already set, or will Gold perhaps go a bit further down.
The readings in the chart are not entirely clear about the bottom either way, although it is very likely that the bottom will be made at or in the support zone:
- The RSI is low enough to produce a bottom in the Gold price
- The selling power has reached a level where a prior low was made
- The MACD is at extremely low levels so a bottom could be very near.
Just like the long term chart of Gold, Silver is also showing the same patterns over and over again. The difference is that the moves in the Silver are even more violent then the ones in Gold. What we see are parabolic rises followed by sharp declines, and this is no different than what we are witnessing right now.
Although it feels like the sky has fallen, Silver has only declined towards the 34 w. MA, a MA that served as a guide throughout this bull market. As long as Silver stays within reach of this MA nothing disastrous has happened. We could even bear a decline towards the lower end of the magenta channel because this would still mean that the uptrend is intact!!
In a few weeks this lower magenta channel line will have reached the blue support zones making a break of Silver below it even more unlikely.
Now that we have established that nothing drastic is taking place, we can have a look at the daily chart.
This chart is showing a falling wedge pattern, a pattern that has bullish expectations. In most case these patterns are left to the upside and followed by a move back to the base of the pattern, in this particular case the $21 level. For these expectations to come true we must see the support zone hold firm and provide a base for Silver to build up strength for a new wave higher.
The RSI and MACD are in good positions for a bottom, while the selling power in the DMI seems to be topping out. These signals are feeding expectations that the $16 level will hold firm and stop this correction, at least for the short term.
Chief Technical Analyst
Resource Fortunes LLC
The above is an excerpt from the technical analysis portion of the monthly Resource Fortunes Premium Newsletter publication, available in its entirety for subscribers at http://www.resourcefortunes.com/. We currently offer a 30-day trial subscription for $2.99