Real e Finance means business
A Technical Look
at Gold and Silver
at the End of 2011
Friday, December
30, 2011
at Gold and Silver
at the End of 2011
Friday, December
30, 2011
While gold and silver are in long-term secular bull markets, they have
experienced price weakness in the last few months of 2011. The technical
picture indicates that they are likely to remain pressured for a while longer
before recovering in 2012.
GLD (the major ETF for gold) fell below its 200-day simple moving
average earlier in December and at the time, I pointed out in a previous
article that this indicated lower prices in the future and it would next fall to
the 325-day. After bouncing back up to the 200-day, gold did indeed fall
to 148 on December 29th, which was the 325-day moving average. At the
time that gold was breaking its 200-day, the DMI (directional moving
indicator) also gave a sell signal on the daily charts. The RSI (relative
strength index) fell below 50 and MACD (moving average convergence
divergence) below the zero line -- both bearish. The sell signal on the DMI
does not seem to be exhausted just yet.
The moving average picture overall still indicates that gold is in a
short-term bull market. For this to turn negative, the 50-day would have to
fall below the 200-day moving average and even then it shouldn't be
considered as serious unless it was confirmed by a cross below the
325-day. The gives gold a lot of room to fall, even if the chart remains
bullish. Even though a short rally in the beginning of 2012 is indeed
possible, lower prices are likely to follow. A break of the 325-day moving
average should be considered significant and would next bring GLD down
to the 140 level. The 40-month simple moving average however is the
most solid support below the 325-day.
Silver shows greater weakness than gold on its charts with the selling much
more advanced. Unlike gold, silver has hit new yearly lows and when this
happens the first time, it is likely that a series of new lows will then be
made, although short rallies frequently take place first. For SLV, the major
silver ETF, the 50-day moving average already fell below the 200-day in
October and the bearish pattern was confirmed when the 50-day then fell
below the 325-day at the end of November. On the daily charts, the DMI is
on a sell signal and this seems to be only halfway done at this point. The
other technical indicators are also bearish. SLV is currently being held up
by support around 26. Much stronger support exists around 21 (really a
band of support between 18 and 21).
The recent drops in gold and silver should be considered to be buying
opportunities, although investors with a longer-term horizon should not be
pushing the buy button just yet. The charts do not indicate a definitive
bottom has been put in, nor that this is likely to happen in the next few
weeks. Secular bull markets tend to last for around 20 years and this
indicates the ultimate high for gold and silver will be around 2020. While
there is always a higher high in the future during secular bulls that doesn't
mean that there aren't major reversals along the way. The stock market
secular bull between 1982 and 2000 had the 1987 crash, the 1989 and
1997 flash crashes, the 1990/91 bear market and the 1998 bear market.
Smart investors used these declines as buying opportunities and made lots
of money when they did. The same will be true for gold and silver for the
rest of this decade.
Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
experienced price weakness in the last few months of 2011. The technical
picture indicates that they are likely to remain pressured for a while longer
before recovering in 2012.
GLD (the major ETF for gold) fell below its 200-day simple moving
average earlier in December and at the time, I pointed out in a previous
article that this indicated lower prices in the future and it would next fall to
the 325-day. After bouncing back up to the 200-day, gold did indeed fall
to 148 on December 29th, which was the 325-day moving average. At the
time that gold was breaking its 200-day, the DMI (directional moving
indicator) also gave a sell signal on the daily charts. The RSI (relative
strength index) fell below 50 and MACD (moving average convergence
divergence) below the zero line -- both bearish. The sell signal on the DMI
does not seem to be exhausted just yet.
The moving average picture overall still indicates that gold is in a
short-term bull market. For this to turn negative, the 50-day would have to
fall below the 200-day moving average and even then it shouldn't be
considered as serious unless it was confirmed by a cross below the
325-day. The gives gold a lot of room to fall, even if the chart remains
bullish. Even though a short rally in the beginning of 2012 is indeed
possible, lower prices are likely to follow. A break of the 325-day moving
average should be considered significant and would next bring GLD down
to the 140 level. The 40-month simple moving average however is the
most solid support below the 325-day.
Silver shows greater weakness than gold on its charts with the selling much
more advanced. Unlike gold, silver has hit new yearly lows and when this
happens the first time, it is likely that a series of new lows will then be
made, although short rallies frequently take place first. For SLV, the major
silver ETF, the 50-day moving average already fell below the 200-day in
October and the bearish pattern was confirmed when the 50-day then fell
below the 325-day at the end of November. On the daily charts, the DMI is
on a sell signal and this seems to be only halfway done at this point. The
other technical indicators are also bearish. SLV is currently being held up
by support around 26. Much stronger support exists around 21 (really a
band of support between 18 and 21).
The recent drops in gold and silver should be considered to be buying
opportunities, although investors with a longer-term horizon should not be
pushing the buy button just yet. The charts do not indicate a definitive
bottom has been put in, nor that this is likely to happen in the next few
weeks. Secular bull markets tend to last for around 20 years and this
indicates the ultimate high for gold and silver will be around 2020. While
there is always a higher high in the future during secular bulls that doesn't
mean that there aren't major reversals along the way. The stock market
secular bull between 1982 and 2000 had the 1987 crash, the 1989 and
1997 flash crashes, the 1990/91 bear market and the 1998 bear market.
Smart investors used these declines as buying opportunities and made lots
of money when they did. The same will be true for gold and silver for the
rest of this decade.
Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
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Economics Investing
Guide' is meant to help
educate people on
how investing choices
in the current
economic
environment. We have
coined this term to
describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is
the official blog of the
New York Investing
meetup.
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