Breaking Down the Chart: Gold and Silver

It is time for another monthly update on the gold and silver chart. Previously, I stated that gold broke the 1,227 resistance and it is now clear for an uptrend until it hit 1,500. Instead, the chart forms another resistance level at 1,250 per ounce. It made three attempt to break the resistance, but it could not close above the resistance level. I still believe gold will break this resistance before the end of the summer with high volume. After, gold will hit 1,500 before the end of the year. The light volume shows that there is no big sell off in gold which indicates that the “big players” are still in the game and that is a good sign for Main Street investors.

Sometimes, technical analyst would use the 50 day exponential moving average as a support level as shown above with the red line. Right now, the support level is at 1,100 and I don’t believe gold will go below 1,000 for a while (unless the big bank short the gold price in massive quantities)  so all of you Elliot Wave people are going to be disappointed.

The fundamentals of the economy will dictate when will the price of gold will move above the resistance. If the Federal Reserve decides to continue their quantitative easing (the definition is when the Feds decide to print more money), I believe it will help gold start the uptrend to 1,500 or more. However, I am sticking with my prediction that 2011 will be a great year for gold.

The chart of silver was a disappointment. After climbing above the first hurdle at $19 per ounces, it stop at nearly $19.80 before dropping down to below $18.00 per ounce. I was hoping silver would jump over the second resistance at 20, but formed a new resistance level at 19.50 instead. However, I still believe silver will finish above $21 before the end of the year and the “big players” on wall street will join the party once quantitative easing appears. This will cause massive inflation and investors will flee to the hard asset like gold, silver, oil, and copper.

I used the 50 EMA as support for the silver price as well. The red line is near $17 so that is our support for silver. If it goes below that red line, then silver could be in a downtrend. I don’t believe that will happen since the fundamentals for silver is so strong that the price of silver could reach at least the triple digit by the end of the decade. We had one instance where silver temporarily broke the support line in early 2010.

This price action was caused by the manipulation by the big banks on Wall Street. They perform naked short in the silver market to depress the silver price and to prevent investors from dumping the US dollar for silver. I don’t have much evidence to prove this other than an interview by Adrian Douglas and Andrew Maguire on Kings World News. (Click here and listen to the interview). There is more reasons, but I will not go into any more details right now.

It is hard to analyze the MACD right now because it is going sideways right now but I will keep an eye on it. The volume is light so I don’t believe the “big players” left this game as well. As a silver investor, you will have to be patience and focus on the big picture. The big picture is the upcoming inflation and the strong industrial and investment demand for silver that will boost the price a lot!

Good night and good luck.