Based on the April 5th, 2011 Premium Update. Visit our archives for more gold & silver analysis.
China Central Bank’s recent announcement of a rise in lending and deposit rates caused gold to trade close to US$1,430 on Tuesday, Asian trading time. However, long-term trends in precious metals are UP although the current investor sentiment appears mixed. Weakness of the dollar, the uncertainty in the Middle East and concerns over a looming debt crisis in the euro zone, could support yellow metal.
On the other hand, bears are seen in the market, past few days. What about the sustainability of current short-term downtrends? Today’s breakout to new highs in gold appears very bullish at the first sight, but the move has not yet been confirmed.
Well, let’s begin today’s discussion with reviewing gold and silver market performance. We will start with the long-term gold chart (charts courtesy by http://stockcharts.com.)
The first and most important point that can be made based on the above chart is that the situation is no longer overbought in the short term. Please take a look at the RSI indicator, which is nowhere near the 70 level (something that would indicate the overbought status). The breakout above the rising long-term resistance/support line has been confirmed.
Until the move above the level of previous highs is confirmed, however, we do not view the situation as one that can be described as bullish enough to justify opening long positions. It simply appears to be mixed at best right now.
In the non-USD chart, we have seen a move to the rising support line followed by a bounce. Index levels are now equal to where they were several weeks ago. Very little has happened as we have seen a period of consolidation recently.
This could be the silence before storm – markets gather strength for a bigger move. Perhaps we may see a new rally begin quite soon. Overall, the situation is clearly mixed for and Gold Investors should stay alert for new developments on the market, even though gold appears to have started another rally. In most cases, waiting for breakout’s confirmation is a profitable idea.
While situation is still rather mixed in the gold market, as the breakout in gold might or might not be confirmed, let’s take a look at gold’s sister metal – silver.
From the non-USD perspective, silver was moving in a rather tight trading range in the past week, but it has moved considerable higher since that time.
The situation is somewhat tense, as the previous ‘silence before storm’ (consolidation) appears to be over. This means that the ‘storm’ part is upon us, meaning a strong move in either direction. Based on silver’s recent performance, it appears that the direction is up.
Still, not everything is bullish for the precious metals market at this point. For instance – silver’s seasonal tendencies.
As you might remember from previous essays, this analysis is based on our forthcoming tool – True Seasonals. This tool encompasses both the seasonality of metals and the impact the expiration of derivatives has on metals. As the precision of True Seasonals has proved to be high in March, True Seasonals remain particularly interesting on the brink of the month of April.
Our tool suggests that silver might follow a sideways trend throughout the rest of the April after some well defined fluctuations during the initial days of the month. Quality of Projection suggests that the reliability of the predictions remain high – at no point does it go below 8 (10 is the maximum) and reaches its peak point at the beginning of the predicted sideways trend. This implies that you should include True Seasonals in your analysis of the market and that the prediction of a sideways trend might be especially accurate.
Therefore, based on silvers usual performance in April and how it moves around the expiration dates, it seems that an upward trend might occur in the first days of April after which we should be particularly cautious and look for signals of a possible slump. In the second half of the month prices of silver might drift sideways. So far we’ve seen a rally, but that is still in tune with True Seasonals.
Summing up, gold has just move to new highs, but this breakout has not been confirmed yet. Silver is the most bullish of the precious metals at this time but since all precious metals move together, we hesitate to call the situation very positive for the white metal, especially that the True Seasonals suggest caution.
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Thank you for reading. Have a great and profitable week!
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