Gold and Silver on the Verge of a Big Move

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"The question everyone keeps asking is: When can I buy gold and silver? With what is unfolding across the pond and the bullish outlook for the U.S. dollar index, the next move is a coin toss. I do feel a large move brewing in the marketplace, so I am preparing for fireworks in the first quarter of 2012."

The past few months have been tough for those holding precious metals stocks, PM futures contracts or physical bullion. Silver is trading down 41%, precious metals stocks down 30% and gold 15%. It has people scratching their heads.

The question everyone keeps asking is: When can I buy gold and silver?

Unfortunately there is not a simple answer. With what is unfolding across the pond and the bullish outlook for the U.S. dollar index, the next move is a coin toss. That being said, I do feel a large move brewing in the marketplace, so I am preparing for fireworks in the first quarter of 2012.

If you step back and look at the weekly trend charts of the dollar index and the S&P 500 index you will see the strength in the dollar, along with a possible top in equities forming. What these charts are saying is that in the next three months we should know if stocks and commodities are going to start another multimonth rally or roll over and start a bear market sell-off.

With the holiday season nearing, hedge fund managers are sitting on the sidelines just waiting for their year-end performance bonuses. I cannot see any large sell-off start until January. Sell-offs in the market require strong volume, and the second half of December is not a time of heavy trading volume.

This leaves us with a light-volume holiday season, major issues overseas and no big-money players willing to cause waves.

So, letís take a quick look at the charts to see where the line in the sand is for the dollar index, gold and silver.

Dollar Index Daily Chart

This week we have seen a strong shift of money out of risk-on assets (bonds) and into risk-off (stocks). This shift is happening before the dollar has broken down, indicating the dollar may be topping and could be an early warning of higher stocks prices going into year-end. Also note that light volume market conditions also favor higher prices.

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Gold Price Daily Chart

Gold could still head lower, but at this point it is holding a key support level. If we see the dollar break down below its green support trend-line, then I expect gold to have a firm bounce to the $1,675-1,700/oz level.

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Silver Price Daily Chart

Silver continues to hold a key support level. If the dollar breaks down, silver should bounce to the $31.50-32/oz area. But if the dollar continues to rally then silver and gold may drop sharply.

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Mid-Week Trend Conclusion

In short, I think the best thing to do is enjoy the holiday season with family and friends. Trading right now is not that great and the market is giving mixed signals. I am keeping my eyes on the market in case it flashes a low-risk setup and I will keep you informed if we get one.

I am still bearish on gold and silver longer term, but the next week or so itís likely we see higher prices.

Be aware that Monday is a holiday, and once January arrives the market could go crazy again. If you want to know about all the swing trades that I personally do, be sure to join my alert service www.TheGoldAndOilGuy.com.

Happy Holidays to you and your loved ones!

Chris Vermeulen, TheGoldandOilGuy

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