I noted on my blogs in early July that gold (here) and silver (here) were technically bullish from a trend perspective – but overbought from a momentum perspective. You will also note on those blogs that the ratio of smart money selling (commercial hedgers) vs. dumb money buying (retail investors) was skewed towards net “smart” redemptions and “dumb” purchases of the metals. This is a contrarian signal that should be taken seriously if momentum is overbought on weekly charts. Further, I noted on the blogs that both metals were approaching their respective resistance targets. Given the factors just noted, I didn’t feel it likely they would breach those prices until an overbought pullback occurred.
Two obvious questions need to be answered if we want to trade gold or silver. Where to buy, and where the next targets lie.
The near termed chart for gold shows us a pullback target in the $1290- $1315 area. I will look at buying at that price. Current resistance targets – not seen on the short termed chart below – are my prior-noted $1400 area and then $1600. If gold can break $1400 it has less noise to get through on its way to $1600.
The slightly longer chart for silver shows a pretty obvious support pullback target of $18. I will consider buying at that price. Silver has an equally clear overhead resistance target at $22. Buying near $18 and selling near $22 would be a nice trade by itself. Whether silver could make it through $22 is yet to be seen.
I’m on vacation this week, and won’t be posting a new blog until I get back August 15th