As we all know the market does the opposite as to what the majority of investors are doing. And while everyone has been buying metals in anticipation of inflation, I find it amusing how inflation for the first time is clearly presented on TV (Egypt issues) and we see gold and silver trading lower than they were a month ago. Seems like the buy the rumor sell the news lives is playing out. But the question everyone is starting to ask is how far will the metals correct?
Personally, I do not think they will drop much further but I do think it's going to take 6-8 months before we see new highs in both gold and silver. They have had a nice run but now it looks as though they may cool off for a while. We could see some strength in the dollar for a little while and that should keep some pressure on metals even though inflation is clearly starting to show up around the world. Then the metals should start to climb the wall or worry again.
Below are my updated charts on gold, silver and the gold miners index. Not much has really changed from last week analysis other than both gold and gold miners are getting deeper into a resistance level forming a bear flag pattern.
Gold Daily Chart
Gold is working its way up into a key resistance level and forming a possible bear flag.
Silver Daily Chart
Silver has been testing its key resistance level for a few days. It is normal to see silver push the limits and make larger moves simply because it is thinly traded and much more volatile. It looks ripe for a pullback at this area.
Gold Miner's Daily Chart Index
Gold stocks have put in a nice bounce from the strong selling in January. As it pushes up into a resistance level it's starting to look more attractive as a short play also. I still think the market has a couple more days to upward/chop before metals see possibly another thrust down, but that also depends on what the dollar does this week. The dollar does look ready to rally this coming week and that will put pressure on metals.
Sunday Night Super Gold Conclusion
In short, I'm still neutral to bearish on gold, silver and gold stocks. Last week's report showed these same patterns and it takes time for patterns to mature. The market always tends to take longer than we think to start a move.
At the moment, I am waiting for metals to form a low-risk entry point, which looks to me like we could take a short position for another downward thrust in the market unfolds as the charts are hinting to before we buy gold for another long-term hold as inflation rises.
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Chris Vermeulen
