Why the Bottom Is Near for Gold and Silver
Source: Seeking Alpha, Przemyslaw Radomski (6/16/09)
"Currently, many factors suggest the end of this correction is near."
During the rest of the week, we had slightly higher prices of gold, silver and mining stocks in the middle of the week, but they closed lower on Friday. It seems we are going a little lower before we reach a local bottom.
Gold has advanced substantially from April to June, and has been correcting since the beginning of this month. Right now the price of gold (and value of the GLD ETF) has closed at its long-term support level, which generally indicates a rebound is likely.
Each time the price got to the analogical support line, it has briefly broken it before rising again, so this may be the case now also.
I recently wrote about the RSI indicator as particularly useful in timing top on the precious metals market. Naturally, there is no perfect tool. RSI is not that useful in determining bottoms on the PM market, as is the case with tops. Still, there are many more indicators than just the Relative Strength Index, and one of them proved very useful in estimating bottoms in the recent past. During the past several days most meaningful bottoms took place when stochastic indicator was below the 20 level and it started to rise (thus crossing its moving average).
The strength in the silver market should not surprise you, if you've been following my analysis for some time now. As far as the target for this decline is concerned, the situation is similar to the one in the gold market.
After having rallied in May, the whole precious metals sector entered a corrective phase, which began two weeks ago. Currently, many factors suggest the end of this correction is near. The coming bottom is likely to provide a favorable buying opportunity for long-term investors who buy more on the dips. Short-term traders are advised to consider preparing themselves for opening long positions and closing remaining short ones in the coming days.