1980’s macho-man, Mr. T., once said that he had his own Golden Rule: “The man with the gold – rules!”
Gold has been making a bit of a move lately, and that has inspired a few questions both by readers of this blog, and in some of the speaking engagement audiences I meet with. As noted on my May 21st blog (http://www.valuetrend.ca/?p=2930), silver can have a pretty predictable seasonal trade from about late June into the fall. Gold can display a similar pattern, although its not been as lucrative as silver has been in that short trading time period. Let’s take a look at gold, silver, and the iShares Global gold equity ETF (XGD-T) for clues as to when, if at all, we might want to consider a trade in the precious metals sector.
I’ve noted a very well defined resistance point in green on the chart below. Should that $1400 level be taken out, that would suggest more upside to come. Such a break, if it occurred in the nearterm, would be classified as a bottom head and shoulders formation. As disciplined technicians, we must be patient and await the break. Gold is still consolidating on the weekly chart. Only day traders should get involved with the recent neartermed movement.
Not much difference here. A break of $13 on this gold miner ETF would complete a head and shoulders bottom. I’ve included some of the momentum studies and moneyflow indicators that I like – for your perusal. Bullish crossovers on stochastics and RSI are encouraging, MACD as usual is lagging, but moneyflow (top and bottom panes) is turning down again. My thoughts on gold stocks is like that for bullion—wait for a breakout before buying.
Silver has been forming a descending triangle over the past year. You don’t want to see $18 broken but a break of $21/oz. would be bullish, especially on volume. Again, wait for the breakout before making a move. I’m sticking to my guns by suggesting that the lower risk trade for those of us who don’t day-trade or short-term trade is to wait for positive breakouts on gold and/or silver. Research at sentimentrader.com shows speculators and retail investors are at an extreme level of pessimism, historically leading into at least short termed rallies in silver. Risk-orientated traders may want to try to catch the bottom here, but that’s not a trade for everyone to try.