Gold & Silver Trading Alert originally published on October 7th, 2014 8:21 AM:
Briefly: In our opinion speculative long positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective.
The precious metals market finally rallied yesterday. Gold moved lower in the first hours of the session, getting very close to the Dec. 2013 low, but it rallied before the session was over, finally closing over $16 higher. Is the final bottom in?
The final bottom – not likely. The local bottom – very likely. Let’s examine the charts and see what actually changed (charts courtesy of http://stockcharts.com).
Briefly: In our opinion speculative long positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective.
The precious metals market finally rallied yesterday. Gold moved lower in the first hours of the session, getting very close to the Dec. 2013 low, but it rallied before the session was over, finally closing over $16 higher. Is the final bottom in?
The final bottom – not likely. The local bottom – very likely. Let’s examine the charts and see what actually changed (charts courtesy of http://stockcharts.com).
Yesterday, we wrote the following:
The Friday’s rally was huge and it’s no wonder that metals and miners declined. The move took place right after the cyclical turning point, so the odds are that we will not have to wait long for a reversal.
All in all, the outlook for the USD Index is still bearish based on the extremely overbought status, the turning point, and the fact that previous similar breakouts (as seen on the weekly chart) were invalidated.
We already saw a significant daily decline yesterday, so it could be the case that the corrective downswing in the USD Index is already underway. The odds will further increase once we see a move below the rising short-term support line (which is likely to be seen shortly).
What about the precious metals market? It rallied and it’s likely to rally even more.
The Friday’s rally was huge and it’s no wonder that metals and miners declined. The move took place right after the cyclical turning point, so the odds are that we will not have to wait long for a reversal.
All in all, the outlook for the USD Index is still bearish based on the extremely overbought status, the turning point, and the fact that previous similar breakouts (as seen on the weekly chart) were invalidated.
We already saw a significant daily decline yesterday, so it could be the case that the corrective downswing in the USD Index is already underway. The odds will further increase once we see a move below the rising short-term support line (which is likely to be seen shortly).
What about the precious metals market? It rallied and it’s likely to rally even more.
Gold moved almost to its Dec. 2013 intra-day low, which is a very important support, so this fact by itself makes a move higher very likely. The fact that gold rallied shortly after declining to this level and ended the session over $16 higher (and forming a reversal hammer candlestick) makes the situation even more bullish. This kind of action is likely to be followed by further rallying.
We recently commented about the gold to USD Index ratio as something that could provide us with technical confirmations. Based on Friday’s and today’s price moves we saw a small decline below the 2008 high (and 2013 low) that was followed by another move higher. Before viewing the decline as a breakdown, please note that back in 2008 the ratio also moved very temporarily below the horizontal support only to invalidate this move and rally shortly thereafter. It seems that we are seeing this type of action once again.
Silver moved higher and is once again visibly above the rising, long-term support line. The white metal is likely to rally based on this support combined with its heavily oversold status.
Today, we would like to cover a very interesting event that happened in the platinum market yesterday. More precisely, it concerns the platinum to gold ratio. Namely, platinum became, very temporarily, cheaper than gold, and this situation was quickly reversed. The entire event happened on huge volume in the ratio (the ratio of volumes). This kind of action (significant events, reversals and huge-volume sessions) quite often happens at the end of a given move. In this case, the preceding move was definitely down.
