Technical Brief: Gold and Silver (UPDATED) by the Numbers

Technical Report: Gold and Silver

  • Gold and Silver are in an end of season lull, this will entice shorts to add.
  • New Year Allocations will be out soon and that should help determine next year's sentiment
  • trading from the short side with light volumes is likely to be profitable
  • the next $20 can be lower. That would make the next $100 higher more likely absent events causing the sell-off

The technicals are always right. Events and interest make them "right" more efficiently. We may be in for a slow period of technical numbers being respected. Conversely, December offers  a high 'volatility of volatility' environment

 

UPDATE 10:46:

Our post was written pre the dump just now. We feared this pile on by momo funds and bullion dealers seeing clients further squaring up books pre holiday. Next report will take this move into account in conjunction with a "December to Remember" overview.  Silver is still above the $15.90 level. The  sell side catalysts  are likely the options expiration over, and rollover of Dec futures into Feb. Some funds rollover, some puke. Today, we are seeing funds throw in the towel that cannot take delivery. The old "front run  the puking funds" game is back we fear.

Gold

interactive chart here

By the Numbers:

Fibonacci Reversal: 1256

1259

1229

1220

1205

1201

1189

1155??

Technical Comments

  1. Downtrend is intact, given no exogenous events. December does offer several significant events for Gold however. More in follow up a "December to Remember" event report to be posted soon afterwards today.-SK
  2. Settlement/trade under last Friday’s lows will trigger MOMO sellers to pile on and press for an 1190-1180 area
  3. Rallies flagging under 1220 will be sold scale-in by trapped longs and short-side accumulators
  4. Placing trendlines on the RSI helps decrease market noise and does not look positive yet.
  5. Note the RSI spike and dump breaking the RSI trendline on election week. It is almost (in hindsight) a head and shoulders pattern
  6. If the RSI gets to the projected trendlines, then that will be a truly oversold market, worth adding to investment portfolios and selling stocks if they have rallied.
  7. Expect the Gold/Silver ratio’s decline to continue, with spikes higher in thin markets. The new spread products have given  Silver bugs a vehicle to express their opinion and they have been doing so. Platinum is also benefiting from the increased liquidity.
  8. A settlement over 1220 or a trade over 1229 kills the downside.
  9. A move back  into the Bollinger band area is viewed as bullish IF it is not sideways. Therefore we cannot pin our hopes on this now. (we use 1.5 width also)- And there it goes: 1046
  10. As always, we like the Fibonacci Reversal number as true bull market re-ignition

The Bottom Line for Bulls

As before, we see the most reliable signs of an oversold market are when: 1) the open interest bottoms and starts going up in a dropping market. When this is combined with a new low in futures not confirmed by  the RSI, as it did before in the 1250 area, we buy with a tight stop for a longer term trade. There is way more going on here in the months ahead in events, asset allocation recommendations and Trump policy digestion. The technicals are always right. events and interest make them "right" more efficiently. We seriously think that surprises are in store in the next 2 months. And while they may not all be good for bulls, the volatility created will be a trader's delight. More on this in our next post.

 

Silver

By the Numbers:

Fibonacci Reversal: 1802

1746

1715

1695

1642

1600-1590

 

Technical Comments

  1. Silver has held its own relative to Gold for several reasons: its industrial aspects, the new Spread contract, and the exodus ofspecs on both sides of the market
  2. Note that the same technical assumptions in Gold apply here in a broad sense with one difference
  3. Normally in extreme moves either way, silver outperforms Gold as a function of volatility. But not in this down swing so far
  4. Silver can move to the 16.00 area with Gold hardly budging.
  5. We expect that could happen on the back of a base metal crash, likely lead by copper if it happens
  6. What is worth watching to us is if Gold rallies and leads Silver in the next bull run. That would be a trading opportunity, though the circumstances would have to be assessed at the time of such an event.
  7. we ar reminded of the wisdom given us by an old GSCI fund manager: "When Silver rallies markedly after Gold, that is a sign that the rally in Gold is almost done.
  8. Smaller "trend chaser" funds  buy Silver due to its "relative value".  And that is the kiss of death historically
  9. In any event right now, things we are asking:
    • Sell silver, buy Gold on a technical convergence?
    • Buy Silver due to its relative strength?
    • Buy Silver if Gold leads then get ready to sell quickly?
    • Buy Silver when it catches up to Gold on the downside?
    • Trade a gold/silver/copper ratio playing silver's precious vs its industrial qualities.

 

 

Good Luck

 

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