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Gold and Silver, The Big Show

Commodities / Gold and Silver 2011 Apr 07, 2011 - 06:34 AM GMT

By: Anthony_J_Stills


Diamond Rated - Best Financial Markets Analysis Article"Fear is a very foolish way to rule a nation, because fear is very tiring over time. No matter how tyrannical the despot, no matter how great the imposed terror; there comes a time when the people simply lack the energy to be afraid any longer, Fear vanishes from the population, and all that is left is blind uncompromising unquenchable rage." ~ Michael Rivero

It goes almost unnoticed that gold and silver are making new bull market highs on a weekly basis. Occasionally it will get an honorable mention in the press when they need to fill in some dead space. God forbid that an analyst actually recommends gold because they will suddenly find themselves "out of time". For weeks the commentators on Bloomberg focused on gold's failure to move above 1,440.00 and insinuated that this is what a top looks like. Yesterday they found out just how wrong they are and I feel that merits some comment along with some projections about what is coming down the road. So here it goes.

One of the prime movers in the price of gold is the US dollar and the dollar is headed lower as you can easily see here:

This was great support and now it is a warning

$USD Index

I realize that this is a simple six-month daily chart but in truth it differs little from a ten-year chart in that the trend is down. It's been headed down for a decade and it's headed down today. The greenback is the world's reserve currency and as it loses value, the world moves to the ultimate reserve currency, gold! Right now the dollar is distributing within a range (75.50 to 76.50) in preparation for a move down to the historical low at 70.70.

Gold is also influenced by what the European and Asian central banks do. The United States is finishing up with QE2 and debating whether or not to go ahead with QE3 and Europe is clearly headed toward a QE2 of its own with bailouts of Portugal and Ireland being finalized. Then you have Japan with a QE of its own, pumping out US $500 billion in the weeks following the earthquake. So for those of you who are looking for a fiat port in the storm, there aren't any so gold will be pushed higher that much more. The yellow metal isn't the only thing on the rise either. Silver is marching higher like the little drummer boy and yesterday the HUI broke out to a new closing high as seen here:

$HUI Index

That is the equivalent of a "confirmation" is Dow Theory with respect to the Dow and Transports. This is the first time in months that gold, silver and the HUI all made new closing highs on the same day, and it is a major buy signal as well.

With respect to the June gold futures contract yesterday was the first time that it was able to poke its head above critical resistance at 1,449.00 (1,447.50 in the spot price) and it closed well above it at 1,452.50 as you can see here:

Gold Dailiy OHLC Chart

This is a significant break out to the upside and it is extremely bullish that the June gold is up another 6.50 today at 1,459.00 and never bothered to look back at what was such strong resistance.

Now I know that you've seen the follow chart of gold twice but maybe the third time is a charm:

$Gold Index

Here you can clearly see how each leg up is followed by consolidation at the top of the range. This is as bullish as it gets! Now look at the far right of this chart and you can see that yesterday the spot gold broke out above that last area of consolidation (1,330.00 to 1,440.00) and today it moved even higher as the spot price is now at 1,460.00 as of 3 pm EST. That means yesterday's breakout was confirmed and that is very important. You should copy this chart and put it someplace where you can see it every day, because this is the reality and not the crap that spews out from your TV.

Then we have silver. Silver has been leading gold higher for weeks now and seems to be picking up more strength with each passing week as you can see here:

Silver Daily OHLC Chart

Counting today gold's poor cousin has made three consecutive bull market closing highs and four out of the last five sessions. That is strength and it is not done by a long shot since there isn't any resistance until it hits 43.71, and is still a ways off in the horizon. Below I have put all the relevant Fibonacci numbers for both spot gold and spot silver so you can follow along:

SPOT GOLD 1,447.50 1,522.19
  1,372.81 1,596.98
  1,298.12 1,671.77
SPOT SILVER 37.95 43.71
  31.91 49.45
  26.48 55.21


and there is no telling where silver will stop even though it is overbought right now.

In conclusion gold will go to a minimum of 1,596.98 and will probably go higher while silver will go to a minimum of 43.71. How much higher each can go is anybody's guess right now. What makes top picking difficult is that a lot of people who want to be in the market were caught on the sidelines and now greed will make them pile in with too much and too late. Yes, I bough both gold and silver yesterday and today but I simply added a little meat to the bone of positions that I began to build two years ago, and I never liquidated along the way. Of course here are people out there calling for US $2,000.00 gold and US $75.00 silver on this leg up, and anything is possible but these are the same people who wouldn't even look at gold when it was at US $1,155.00 back in July of last year. Now they're all heroes!

Rest assured that gold and silver will have a substantial correction this summer but only a fool would give up his position that he struggled so hard to construct and my mother didn't raise any fools. Finally the volatility is only going to increase over the next month or so and that will cause all the traders to sell cheap and buy dear. Fear and greed act on the price of gold and silver like no other market so anyone who try's to trade these two will go broke! My best advise remains to buy a little bit of physical gold and silver (coins whenever possible) every month and watch the food channel when you turn the TV on. Occasionally scan the Sunday paper and look at the price of gold and then go straight to the comics. You'll grow rich and you'll be happy!

Anthony J Stills                                            Steve Betts            

© 2011 Copyright Anthony J. Stills - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


07 Apr 11, 13:13
Gold confirmed highs

Thanks for pointing out that gold,silver and the HUI all made new highs on the same day. I was so exiceted about the obvious breakout of gold that I failed to see the additional confirmation. Not that it changes anything, but its a good confidence booster. Yes, silver is going parabolic here. This is going to be a wild ride from here on in with shorter and shorter pullbacks.

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