The past few months have been tough for those holding precious metals stocks, PM futures contracts or physical bullion. With silver is trading down 41%, precious metals stocks down 30% and gold 15%. It has people scratching their head. The question everyone keeps asking is when can I buy gold and silver?
Unfortunately that is not a simple answer. With what is unfolding across the pond and the bullish outlook for the US Dollar index the next move is a coin toss. That being said, I do feel a large move brewing in the market place 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 SP500 index you will see the strength in the dollar along with a possible stop in equities forming. What these charts are telling is that in the next 3 months we should know if stocks and commodities are going to start another multi month rally or roll over and start a bear market selloff.
With the holiday season nearing, hedge fund managers sitting on the sidelines just waiting for their year end performance bonuses, I cannot see any large selloff start until January. Selloffs 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 let’s take a quick look at the charts as to where the line in the sand it for the dollar index, gold and silver.
Dollar Index Daily Chart
This week we have seen a strong shift of money out of risk off 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 favour higher prices.
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 breakdown below its green support trendline then I expect gold to have a firm bounce to the $1675 – $1700.
Silver Price Daily Chart
Silver continues to hold a key support level. If the dollar breaks down the silver should bounce to the $31.50 – $32 area. But if the dollar continues to rally then silver and gold may drop sharply.
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 with the market 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 its likely we see higher prices.
Happy Holidays to you and your loved ones!
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