The Gold and Silver Precious Metals Correction
Source: Chris Vermeulen, TheGoldAndOilGuy (5/27/10)
"Volatility levels are through the roof and the broad market is moving up and down like a yo-yo. . ."
Although we have seen stocks jump around the past few days, precious metals have held strong with very little volatility. This is because of the economic fears looming for the U.S. and other countries of possible financial collapse. This fear is helping to boost gold and silver prices because they are seen as the safe haven. Also we are seeing money move in the U.S. dollar because the country is still seen as a leader in many ways helping to boost the USD.
Following are a couple charts on gold and silver ETFs showing the end of last years rally and the correction in prices which are now looking to setting up for another leg higher.
GLD—Gold ETF Trading Vehicle—Daily Chart
I called this chart "The Golden Correction" because it literally is. We saw prices rally late in 2009, finishing off with a parabolic spike that we know is not sustainable and almost always results in a VERY sharp drop. This correction unfolded as planned with an ABC retrace, which shakes out weak positions. We then we saw a reverse head and shoulders (H&S) pattern form, which again also shakes out weak positions. Once the neckline was broken from the reverse H&S, the new uptrend was started—providing a couple trading opportunities for us along the way. The most recent low-risk entry point can be seen on the chart as gold prices dropped back to a key support level.
Gold Futures Price—60-Minute Day Trading Chart
Gold has been showing some very bullish price action the past week, forming several mini-bull flags with confirming volume levels. I think we should see gold pop another $5–$10 in the very near future, if not continue higher for several days.
SLV—Silver ETF Trading Vehicle—Daily Chart
Silver formed much of the same patterns as gold, but with much more volatility. Also silver has yet to break the 2009 high, which is surprising; but, with a large part of silver being use for industrial purposes, it does make sense, as the economy is not as strong as it was thought to be in 2009. Silver carries much more risk when trading because it has more random moves and increased volatility.
Midweek Precious Metals Trading Conclusion:
In short, gold and silver are in an uptrend and looking strong. Both are currently trading at short term resistance levels on the daily chart which has caused them to stop moving up today (Wednesday May 26th) but on an intraday basis they look solid and could break though these resistance levels.
That being said, buying way up here adds a lot more risk because a good chunk of the move has already been made; and, if prices do roll over and start heading back down, the next support level is several percentage points away for placing a protective stop with the proper amount of wiggle room.
If trading gold, silver and Index futures and ETFs interests you, check out my trading services at www.TheGoldAndOilGuy.com.