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Are Gold and Silver on the Verge of a Big Move?

December 22nd, 2011 · Chris Vermeulen · 21 Comments

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.

Dollar ETF Trading

 

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.

Gold ETF Trading

 

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.

Silver ETF Trading

 

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!

To read more gold & silver trading tips visit www.TheGoldAndOilGuy.com


21 responses so far ↓

  • 1 Stillgotshoeson // Dec 22, 2011 at 10:39 pm

    Are Gold and Silver on the Verge of a Big Move?

    I think so, the trouble is knowing which way ๐Ÿ™‚

    20% down or 100% up? or both is just as likely…

  • 2 Greg Atkinson // Dec 22, 2011 at 11:04 pm

    I expect gold to head lower. I am one of the few who reckon gold prices are too high and are being held up by fear not fundamentals. I will think about owning some gold when I see it trading down near $1000 USD an ounce.

  • 3 Lachlan // Dec 23, 2011 at 8:53 pm

    I’m not bearish on physical gold but it is priced through the futures market which has shown to be flawed… and that market could dump even below 1000 easily I guess. If spot falls from this range then 1300 is a primary support area to watch. I’d like to see gold in the hundreds again anyhow just to get the paper problem out of the way, maybe before it gets bigger… and maybe to see all the bugs (granted I am one) go nuts…such is my warped sense of humour..and conviction that it will rise from there to a much higher price/exchange rates… and probably with other rising asset prices granted. Condolences to those who suffer however some things are inevitable.
    Money printing has not stopped according to some sources. My own check of US money aggregates seems to confirm that is true. There will be no end to exponential debt creation until a new system emerges. Unless we expect TPTB to walk away from their posts. Whatever happens next…HOLD ON! ๐Ÿ˜‰

  • 4 Lachlan // Dec 23, 2011 at 9:08 pm

    Not sure how PAGE may play into the futures problem also.

    Although there is no way to know for sure if such a meltdown is imminent, if it is to be then silver may likely break 22 and revisit historical price low points before achieving higher non dollar asset denominated exchange rates…with or without higher prices…imo only.

  • 5 Ned S // Dec 23, 2011 at 10:15 pm

    Mainstream commentors are starting to warm to gold now (at these prices?) :

    http://money.msn.com/investing/the-euro-fix-we-have-to-live-with-jubak.aspx

  • 6 Lachlan // Dec 24, 2011 at 5:20 am

    Its a no-brainer as I see it Ned. The collateral problem will be fixed with commodity backing/revaluation. The real problem is the restructuring required in the previously debt fuelled economies and maintaining social order. This is where I worry about people with unrealistic expectations and proneness violence which will make their situations far worse. Once again, glad I live in Australia mate.
    Here’s some sources who have worked/are working in the banking system.

    http://www.youtube.com/watch?feature=player_embedded&v=jaeC8CEi1DU

  • 7 Greg Atkinson // Dec 29, 2011 at 9:03 am

    Gold seems to be on a path downwards and according to an article today on the Bloomberg site:

    “Gold imports by India, the biggest consumer, may drop as much as 50 percent this month after the rupee plunged, according to the Bombay Bullion Association. China restricted gold trading in spot and futures contracts to the Shanghai Gold Exchange and the Shanghai Futures Exchange to crack down on illegal buying and selling of commodities.

    โ€œConcerns were raised over the sustainability of demand out of China and India,โ€ Marc Ground, an analyst at Standard Bank Plc, said in a report.”

    Source: Gold Posts Longest Slump Since 2009

    The outlook for gold prices sounds bearish to me.

  • 8 Stillgotshoeson // Dec 29, 2011 at 10:35 am

    A pull back on the Gold and Silver price has been expected for some time. Does not alter the fact that Gold and Silver prices are destined to go much higher before this “GFC” plays out.

    NCM nicely under $30 now Lachlan ๐Ÿ™‚

  • 9 Greg Atkinson // Dec 29, 2011 at 11:01 am

    If the demand from China & India slows then gold prices will be heading much lower. It’s possible that gold prices have already reached their GFC peak. That might sound unlikely but then again the gold bulls were saying gold would be above $2000 USD an ounce by now.

    If debt needs to be paid down then people & nations will sell assets and I don’t see any reason why gold would not be sold off as well.

    The next release of gold supply and demand statistics from the World Gold Council will be interesting.

  • 10 Lachlan // Dec 29, 2011 at 9:09 pm

    The only type of gold investment I have worry about is a small AUD gold ETF position I have. So far we have had a two year pennant consolidation pattern which broke out and is retesting the previous consolidation, the pennant top itself. If the price bounces strongly here than all is likely ok on the way to $2000 plus but if not then I suspect the paper gold crash could start.

    As far as physical bullion is concerned my only question is will they print…well they must and they are. Physical will always have a buyer waiting for weak hands to sell. Greg I agree some nations could sell …such is the current paradigm. Not sure about China though but all we can do on that is speculate since they don’t tell you what they’re doing till well after they have done it. I doubt they will sell gold for paper, very much.

    If paper gold as dictated by futures and which represents a minimum of 99% of the market does melt away my next question is what will the bottom be and will there be bullion for Joe average to purchase? Think I’ll just keep buying the dip. I guess this market is too volatile for some but I don’t view things that way.

    Concerning USD gold there was some sort of change to the status quo when it corrected from 1900 odd down to 1530 odd and to in the middle of a previous consolidation range. We normally saw the bounce to new highs from above the previous range. Just got to wait and see on that one. Once again could be the start of a paper collapse.

  • 11 Lachlan // Dec 29, 2011 at 9:18 pm

    Shoes I have not yet purchased NCM. To my way of thinking it is a proxy almost for the gold price albeit with some yield thrown in. Will see how things go, I was totally distracted from markets today.

  • 12 Greg Atkinson // Dec 30, 2011 at 12:06 pm

    Seems to be some pretty wide ranging views on gold these days with some former gold bulls turning very bearish.

    From Bloomberg today:

    George Soros, the billionaire who two years ago called it the โ€œultimate asset bubble,โ€ cut 99 percent of his holdings in the first quarter, Securities and Exchange Commission data show. Hedge fund managers John Paulson, Paul Touradji and Eric Mindich also sold bullion this year. While speculators in New York futures are the least bullish (.MMGCNET) in 31 months, the median estimate in a Bloomberg survey of 44 traders and analysts is for prices to rally as much as 40 percent to $2,140 an ounce in 2012.

    Source: Soros Sees Gold on Brink of Bear Market

  • 13 Stillgotshoeson // Dec 30, 2011 at 4:28 pm

    The fundamental reason to buy bullion and shares in precious metal miners are still there.

    Selling out and buying later on the dip, or keeping what you have got and accumulating more on the dips is a personal thing.. Buy/Sell spread on real bullion and CGT implications play a part on whether one holds or sells.

    Will not be surprised to see them buy in again in the near future.
    My physical bullion holdings are only a small portion of my portfolio, prefer to be leveraged to gold/silver prices through the miners.

  • 14 Lachlan // Dec 30, 2011 at 8:34 pm

    “Will not be surprised to see them buy in again in the near future.”

    They already did. At higher prices too.

  • 15 Lachlan // Dec 30, 2011 at 8:41 pm

    I don’t know the exact prices of course. Maybe they were lucky to by back at the same price after missing the second quarter run up. Shows me that even these big players have no idea what gold will do over the long term. Maybe China was having a “currency war” with the west back in Aug/Sept.

  • 16 Trading Coach // Jan 11, 2012 at 12:12 pm

    Gold and silver are in the move. Prices of these metals are ready to explode.

  • 17 Lachlan // Jan 17, 2012 at 6:45 am

    My call for silver based on its inherent paper weakness has been for a bottom around 22. Silver is interesting now because it may be acting as an indicator. USD silver is hitting a well validated trend line currently which COULD be the signal for its final capitulation to 22. This would fit the current theme of equities weakness, silver weakness, dollar strength and Euro bad news with Portugals 10 year yields spiking last night. Then Spain has a problem with its Portugal exposure. Greg maybe Portugal will dump gold to pay debt now.

  • 18 Lachlan // Jan 21, 2012 at 4:28 am

    Sellers came in at trend line resistance but it was not enough and a strong move up last night towards 32 has knocked my hopes of discounting to 22 back a way. Still accumulating at these levels anyhow but I’ll break the bank if we ever get to the 22 level (higher in AUD’s for physical)

  • 19 Lachlan // Jan 22, 2012 at 6:25 pm

    Such a strong move in silver it was on Friday night, so we probably have to rally a few more dollars at least to pull up the momentum…which should have implications for equities and so I guess we will see XJO back to 4350/4400 resistance at least. The probability of capitulation lower is reduced… while never impossible of course. The possibility of a bottom being in is raised…alas silver cannot be trusted in the current age of derivatives.
    Had a very good week in shares last week. Can’t understand why FML’s are down so much Shoes but I’d buy them if not for other priorities. Too much to buy right now ๐Ÿ™‚

  • 20 Stillgotshoeson // Jan 23, 2012 at 9:02 am

    The takeover of Crescent Gold has not been well received. Concerns about the high cost per ounce, no updates on Treasure Island. Longer term price trend for Gold imo is still to go up so the cost of mining at Crescent holdings should not be a problem in the medium term, longer term could be a different matter. I plan to be out by then if all goes well. I think FML are undervalued at this time, still have a target range of 12 to 15 cents for them. Can see them doing a 10 to 1 or similiar consolidation in the short to medium term as well. If they look like getting the 200k ounce production this year that will give a boost to the share price and a rerating into the ASX200 from the current ASX300 I think, this will be a positive for the share price.

    As confident as I am, I still do not break my rules and over commit funds on a single stock. Limit exposure has always been my game plan. Have as many of them as I intend to buy.

  • 21 Stillgotshoeson // Jan 26, 2012 at 11:43 am

    Well the US Fed has indicated continued low interest rate policy in to 2014 and a willingness to stimulate the economy again and gold has broken above $1700USD an ounce and Silver above $33USD

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