Commentaries, Silver

Breaking Down The Charts: Gold and Silver

Here’s the monthly gold Comex chart. In my previous technical analysis in June, I made a few comments on how gold was to break the $1,300 level and climb to $1,500. I still believe that will happen before the end of the year. Keep in mind that it is hard to interpret the charts when it is manipulated by the banks. However, those days will end since the financial reform bill included a limit on short position in the gold and silver bullion market. Ted Butler stated that JP Morgan is now beginning to cover their short position more than ever before. Click here to listen to his interview.

Let look at the gold chart above. The chart shows that gold has been in a massive accumulation stage for over 9 month now. It is gaining technical strength every day as the big players continues to buy more gold while the “weak hands”(most of Main Street investors are referred to weak hands) chicken out on pullbacks. The last base was formed lasted from March 2008 to May 2009. It went from $900 per ounces to over $1100 per ounces in six month! If you study the pattern in gold prices, you will notice that the base lasted more than 10 month on a few occasions.

The March 2008 base lasted 14 month. Previously, there was a 14 month base starting on April 2006 to August 2007. The price went from over $650 to nearly $980 in 5 month. The current base is circled above. As a Main Street investor, this is a time to add more to your gold bullion position and gold stocks. Your returns will be higher if you buy during a base rather than waiting for a uptrend.

As stated in the chart, the resistance is at $1,250 and the support is at $1,150. It will be interested to see how many times the gold price will test that resistance. It already tried twice and failed. I seriously doubt gold will go below $1,000 considering all of the uncertainties in the market so I’m not worried about gold price falling that far. The chart is strong for the long term and this base may end in a couple of month so keep adding to your positions!

The next chart I want to look at is GDX. This ETF is a collection of many quality gold/silver miners. I recommend this ETF for passive investors who do not want to spend time researching for mining stocks. The chart is forming a nice triangular base. It displays a lot of technical strength and the uptrend will be great if it break resistance at $55. Buying a few LEAP call option around that price would not be a bad idea. I’M NOT A CERTIFIED INVESTOR SO DON’T TAKE MY WORDS FOR IT! I have the support at $48 but you can use the 50 day moving average as a support since it tested those level several times and failed.

I believe when gold break the $1,250 resistance level, GDX will follow and break out as well. This ETF is new so I can not look for pattern from the past. However, this strong base is very attractive for any technician who is looking for the next big uptrend.

The yearly silver chart is stronger than the gold chart because the accumulation base is very structured. The base is still strong after nearly three years! The silver chart shows a triangular base with resistance at $19.50 and support at $17.50. The second hurdle is still at $20 and the third hurdle is at $21. I thought silver was going to make their run in May but the banks shorted it down back to $17.50 before rebounding to around $18.30. The MACD is still very bullish and I do not think it will turn bearish anytime soon because of the uncertainty in the economy, the stock market and the high industrial demand for silver.

As I mention for gold, silver will have a short limit enforced by the Commodity Futures Trade Commission (CFTC) within the next 170 days so the endgame for the dollar is coming soon. The players will dump the dollars for gold and silver because it has real value and it is hard to duplicate. For these reasons, I believe silver will close above $21 before the end of the year. James Turk believes silver will need to hit $30 before 2011, but I am not confidence on that price target yet. I stated 2011 will be a big year for gold and silver because the economy will start collapsing and the commodities price will increase as investors look at the hard asset as a safe haven. Keep adding to your position while it is cheap because it will not last very long!

One of my silver stocks is revealed in this blog. A silver royalty company, Silver Wheaton (SLW), has big potential to climb to the triple digit because of their strong fundamentals, great management, and unique business model. The stock had a bullish triangular base in 2009 before reaching the $15 range. It formed a tight flag pattern for a few months before starting another uptrend to the $20 range.

Right now, it is under a tight flag pattern and waiting for lift off. The resistance is at $22 and support is $17.50. The volume is light and that is a good sign because it signals that the big players are still adding to their position while the weak hands are taking their profit. I expect the next uptrend will take the price to the next psychological resistance at $25. The flag pattern is rare but it is a powerful indicator. I believe this stock will create big returns for investors.

Until next time, good night and good luck.

Disclaimer: The information I present to you should only be used as a guidance. It should not be used to make any investment decision of any kind and I strongly suggest that you practice due diligence before buying and selling your investment. I will not be held responsible for any mistake and wrongdoing on your part.