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Posts Tagged ‘gold silver price analysis’

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Trending or Trading: When To Use Momentum Indicators

In Market Analysis on September 13, 2010 at 5:38 pm

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Price volume action is showing weakness on this rally and there is a good chance we could see a third failure at the 200 day.  Many times, before bear markets ensue you can encounter three or four failed rallies above the 200 day before the primary bullish trend is reversed. Markets take time to transition from a bull to a bear market. Bullish mania wears down as repetitive failures shows a market that is losing confidence.  On each subsequent rally the amount of bargain hunters dwindle.  Price volume action is poor on this rally attempt.  If we see another failure- which I believe may occur- we could see a major trend change.

Stochastics have been really accurate in this rangebound market.  Oscillators are most valuable in trading markets, not trending.  The S&P currently is a trading rangebound market while precious metals are in a steady upward moving trending market.  Since May the SPY has been in a trading range that only would have been profitable if one used oscillators.  On the other hand, in trending markets like gold which is in a steady uptrend the use of oscillators or stochastics should be secondary as those conditions shift as new high territory is reached.  In trending markets it is more important to rely on moving averages and trend support to make buy or sell calls.

Be careful of selling gold or silver solely on overbought conditions. Gold (GLD) and Silver(SLV) are in very bullish patterns breaking out into new highs in an upward trending market.  Whenever you see a breakout into new price territory on strong volume, momentum indicators need to be relied upon less.  Gold and silver have both shown tremendous relative strength and I believe will provide continued safety during a market downturn.

I believe gold and silver will continue to perform strong compared to other assets.  This summer has been hard on the equity markets and quantitative easing has been necessary for the Federal Reserve to maintaing momentum in this market.  New job growth has been weak and we are not out of the woods with the European Sovereign Debt issue.  Junior mining stocks who are translating cash into resources is where I want to be at the moment as they have held up well during this summer correction.

Gold is finding support at the 4 week moving average and is forming the handle on the cup.  I believe gold and silver could have a very strong rally as the general public becomes aware of the junior mining sector and the value of gold and silver as an asset class.

Disclosure: Long Gold and Silver Mining Stocks

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Silver Ascending Triangle Breakout. Major Move Expected

In Market Analysis on August 25, 2010 at 6:14 pm

Silver had very powerful break out today as investors are seeking assets that are safe and will retain value during a debt crisis.  Silver is  seeing demand at these price levels as it is historically cheap relative to gold.  If the ratio came down to the levels it was in 2006 it would be close to $27 an ounce.  Silver is soaring because investors are realizing this is a hard asset, it is money and it is historically cheap compared to gold.

Gold has reached overbought conditions from my July 28th buy signal.  Right now gold is a bit overbought while silver is at an interesting buy point, having found support for the fourth time at its long term 200 day moving average.  Today’s breakout of the symmetrical triangle, a very bullish chart pattern, is a sign that silver has built up a lot of internal strength and could break out into new three year highs. Remember, silver is significantly below all time highs while gold has already broken into new highs.

While I am bullish on gold, I believe investors could see a higher percentage move in silver.  I have also alerted my readers to a specific  mining company which has recently found a major discovery in Mexico.  Pure silver discoveries are very rare.  Silver supply is mostly produced as a byproduct which makes supply very inelastic.  A new pure silver discovery in a silver bull market could receive a nice premium.

I believe silver will make a major move on this break out. Investors are looking for a safe haven, protection and value in silver.  Gold has already made a significant move and is quite overbought, while silver has not participated to the same extent.  The gold silver ratio should move to historical norms which could mean a major move for silver.

If you do a study of the point and figure chart of the relative strength of silver versus the S&P500 since 2001, its strong uptrend is apparent. Each time silver falls back into support, it breaks out and makes significant rallies.

The break above the red bearish resistance line and a double top breakout coupled with the daily chart symmetrical wedge pattern demonstrates that silver has reached a critical juncture and could make a nice move.