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Gold and Silver and Stocks Technical Price Target Forecasts

Commodities / Gold and Silver 2010 Sep 09, 2010 - 03:12 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleThe precious metals sector is at an important juncture. Let’s take a look at the potential upside targets.

First lets start with Gold. Gold has formed a bullish cup and handle pattern, which is more bullish than usual due to the handle being formed at a higher level than usual. The pattern projects to $1450. Initial support is $1235-$1240 followed by $1225.


Note that volatility is low. This is bullish coming into a potential breakout as it means momentum can be added to the breakout in the form of rising volatility. Also, note the ratios at the bottom. Gold in real terms isn’t as strong as it was and this bodes well for the more leveraged plays.

Silver of course is one of the leveraged plays on Gold. Silver has also formed a cup and handle pattern, which targets $24. Note the ratios at the bottom of the chart. Against foreign currencies, Silver has already broken to a new bull market high and Silver is breaking to the upside against Gold. As long as Silver holds above $18.50, one has to be bullish for the medium term.


Another leveraged play on Gold is the gold stocks. This chart shows the HUI index, which is testing resistance at 500 and eventually 520. A clean breakout to new highs and then we can focus on targets of 640 and 660.


Interestingly, the juniors have already broken out to a new high. The breakout projects to targets of $36.50 and $39.00. The juniors look a bit extended in the short-term, so it is advisable to wait for a pullback. A pullback below $32.00 would present an opportunity.


Certainly these technical targets look bullish but what about sentiment? Excessive bullish sentiment can mitigate what appear to be very positive technicals. Judging from the COTs and Sentimentrader.com’s public opinion, there does not appear to be that excessive bullish sentiment.

As you can see below, public opinion on Gold is 68% bulls, which is not so enthusiastic relative to 2006 and 2008. 

With Silver knocking on the door at $20/oz, the public is not yet fully on board. Public opinion is 64% bulls, which is low compared to 2006 and 2008.

Remember that sentiment follows the trend most of the time. When a market breaks to the upside, there will be bullish sentiment. We just don’t want to see excessive bullish sentiment as the market is breaking out. And we don’t see that in the sector at the present time.

In our premium service, we have paid little attention to inflation-deflation or money supply or velocity. Instead, we correctly focus on the fiscal health of various governments. As that deteriorates, it brings us closer and closer to the eventual end game, which is a new currency regime. For what it is worth, I do believe we will see severe inflation but note that hyperinflation of the Zimbabwe or German kind is out of the question due to the deep and liquid bond markets that we, Europe and the UK have. If you’d be interested in more clear analysis and how you can reap big profits while protecting yourself, consider a free 14-day trial to our premium service.

Jordan Roy-Byrne, CMT

Jordan@thedailygold.com
http://www.thedailygold.com/newsletter

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.


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