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Gold and Silver Prices nearing Long Term Support

February 22nd, 2013 · Chris Vermeulen · 23 Comments

Gold and silver along with their related miners have been under a lot of selling pressure the last few months. Prices have fallen far enough to make most traders and investors start to panic and close out their long term positions which is a bullish signal in my opinion. My trading tactic for both swing trading and day trading thrive on entering and exiting positions when panic trading hits an investment. General rule of thumb is to buy when others are extremely fearful and cannot hold on to a losing position any longer. When they are selling I am usually slowly accumulating a long position.

Looking at the charts below of gold and silver you can see the strong selling over the past two weeks. When you get drops this sharp investors tend to focus on their account statements watching the value drop at an accelerated rate to the point where they ignore the charts and just liquidate everything they have to preserve their capital. A few weeks ago I posted my outlook on precious metals which seems to be unfolding as expected: http://www.thegoldandoilguy.com/articles/precious-metals-miners-making-waves-and-new-trends/

Gold Bullion Weekly Chart:

The price and outlook of gold has not really changed much in the past year. It remains in a major bull market and has been taking a breather, nothing more. Stepping back and reviewing the weekly chart it’s clear that gold is nearing long term support. With panic selling hitting the gold market and long term support only $20 – $30 dollars away this investment starts to look really tasty.

But if price breaks below the $1540 level and closed down there on a weekly basis then all bets are off as this would trigger a wave of selling that would make the recent selling look insignificant. And the uptrend in gold would now be over.

Gold1

 

Silver Bullion Weekly Chart:

Silver price is in the same boat as its big sister (Yellow Gold). Only difference is that silver has larger price swings of 2-3x more than gold. This is what attracts more traders and investors but unfortunately the masses do not know how to manage leveraged investments like this and end up losing their shirts.

A breakdown below the $26.11 price would likely trigger a sharp drop back down to the $17.50 level so be careful…

Silver2

 

Gold Mining Stocks – Monthly Chart:

If you wanna see a scary chart then look at what could happen or is happening to gold miner stocks. This very could be happening as we speak and why I have been pounding the table for months no to get long gold, silver or miners until we see complete panic selling or a bullish basing pattern form on the charts. We have not seen either of these things take place although panic selling is slowly ramping up this week.

There will be some very frustrated gold bugs if they take another 33% hair cut in value… You can view some of my trading charts, setups and analysis free at my stockcharts.com list. Be sure to vote for me chartlist each day so I know its of value: https://stockcharts.com/public/1992897

GoldMiners3

 

Precious Metals Trend and Trading Conclusion:

In short, the precious metal sector remains in a cyclical bull market. That being said and looking at the daily charts the prices have been consolidating and are in a down trend currently. Until we see some type of bottoming pattern or price action form it is best to sit on the side lines and watch the emotional traders get caught up and do the wrong thing.

The next two weeks will be crucial for gold, silver and miner stocks. If metals cannot find support and close below the key support levels things could get really ugly fast. If you would like to receive my daily analysis and know what I am trading then check out my newsletter at: www.TheGoldAndOilGuy.com


23 responses so far ↓

  • 1 Lachlan // Feb 24, 2013 at 4:39 pm

    Very good. It is certainly possible that this market could collapse here. If it does I will hold my bars and coins. Maybe keep them as tokens of the great war in the market place.

  • 2 Greg Atkinson // Feb 25, 2013 at 8:41 am

    I’d imagine there is a lot of hot money ready to exit gold if traders/investors sense that its glory days are over for a while. Apparently gold was certain to reach $2000 USD/ounce sometime over the last few years and now that “certainty” failed to eventuate I see some gold bulls are rolling out a new target of over $2000 within the next few years.

    Personally I reckon at some point it will bottom out at around $1000 USD/ounce or lower but who can be really sure?

    Anyway I figure if you were able to get gold at a good price it’s probably well worth holding onto as part of a investment portfolio. My preference is silver although that seems to be a more difficult market to read than gold!

  • 3 Biker // Feb 25, 2013 at 9:04 am

    Second time you’ve predicted $10K per ounce, Greg.
    Sorry, can’t see it… .

  • 4 Lachlan // Feb 25, 2013 at 11:16 am

    There must be a lot of paper stops built in to the gold trade and it would not take much now to trigger them off. Especially now days the price is high enough to temp profit takers so I have to consider downside from those angles. On the upside I doubt that deflation can exist in these markets for any more than very brief periods. If anyone wants to claim it does that is fine. I would say it is due to the way we prefer to quantify inflation.

  • 5 Lachlan // Feb 25, 2013 at 11:23 am

    I am not hung up on inflation over short periods because whether houses gold or whatever the correlation is not so strong. Over long periods it is undeniable. How much did houses, gold and cars cost fifty years ago? Long term bets are the way to go….and sure there is more to it than just that.

  • 6 Biker // Feb 25, 2013 at 11:41 am

    “Long term bets are the way to go….”

    I think so, too Lachlan. Anything else is just gambling, in my (highly conservative) view.

    At present, I’m studying what my kids are doing with indexed funds. They’re steadily accruing larger share portfolios, following some simple rules set up by our elder son. One of those rules, the ‘long term’ provision, appears to be working well for them… .

  • 7 Lachlan // Feb 25, 2013 at 12:10 pm

    I am sure they will do well BP. There will be a new bull market soon enough and even if this is not a bottom here it will be close enough imo.

  • 8 Greg Atkinson // Feb 25, 2013 at 2:18 pm

    Lachlan apparently Soros and a few others have sold some of their gold holdings but that may just mean they want to take some of their profits and make a bundle of money elsewhere.

    BP, it should be $1000 an ounce not $10000. Having too many zeroes is a by product of working in JPY too often.

  • 9 Lachlan // Feb 25, 2013 at 6:03 pm

    Greg I was talking once before about how gold and gold shares can sell off, bottom and begin to rally many months before stock markets do so and maybe this is what may happen. Gold has had quite a hiding already and might shake out to 1450 on the back of stops liquidations etc and gold shares are already in a terrible terrible way. When we look over to the ASX200 Dow and the AUD/USD however they still have yet to correct. Although I am bullish on the AUDUSD it could easily shake out hard before resuming up trend.
    Anyway who knows these days but that’s one idea I am keeping an eye on. Mind you if my gold shares sell off any more I’ll need a microscope to examine my portfolio 😉

  • 10 Stillgotshoeson // Feb 25, 2013 at 6:12 pm

    “Personally I reckon at some point it will bottom out at around $1000 USD/ounce or lower but who can be really sure?”

    A figure of $10000 in that statement would not have made sense, a normal person with normal comprehension skills would have realised that it was a typo.

    THe 100k portfolio is a long term play.

    I still see gold and silver having more upside than downside despite any pull backs. I am thinking the ratio will fall to around 30:1 for silver to (give or take a little)

    $2000USD/Ounce gold and $60ishUSD silver. THis year is not out of the realms of possibilities either imo.

    I will continue tadd silver bullion to my holdings on dips.

  • 11 Biker // Feb 25, 2013 at 6:27 pm

    “A figure of $10000 in that statement would not have made sense, a normal person with normal comprehension skills would have realised that it was a typo.”

    Second time this typo has occurred, Stillgotshoeson. A novice goldbug, gleaning glitter from this well-respected site, might actually presume that Greg Atkinson does actually believe gold will bottom at $10K/oz. I know that some _abnormal_ punts have been made here (for gold, the banks, the oz dollar, property, share portfolios, etc) on this very site.

    Perhaps you’re more conversant with a $100,000 figure(?)

  • 12 Stillgotshoeson // Feb 25, 2013 at 6:47 pm

    Biker // Feb 25, 2013 at 6:27 pm

    “A figure of $10000 in that statement would not have made sense, a normal person with normal comprehension skills would have realised that it was a typo.”

    Second time this typo has occurred, Stillgotshoeson. A novice goldbug, gleaning glitter from this well-respected site, might actually presume that Greg Atkinson does actually believe gold will bottom at $10K/oz. I know that some _abnormal_ punts have been made here (for gold, the banks, the oz dollar, property, share portfolios, etc) on this very site.

    Perhaps you’re more conversant with a $100,000 figure(?)

    Do you mean this $100,000 figure?

    Stillgotshoeson // Feb 25, 2013 at 6:12 pm

    THe 100k portfolio is a long term play.

    The other $10000 Gold figure mentioned by Greg was in the predictions thread and said with a healthy dose of sarcasm, of course normal people with normal comprehension skills understood that too.

    A normal person, even a novice goldbug, would understand that gold can not possibly bottom at $10000USD/Ounce when in it is currently circa $1600USD/Ounce.

  • 13 Greg Atkinson // Feb 25, 2013 at 8:33 pm

    Stillgotshoeson yes I think my original typo was pretty easy to spot.

    As for the gold price heading to $2000 USD/ounce..yes that is quite possible especially if some soft numbers come out of China and Ben decides to pump some more sugar into the monetary system again.

  • 14 Lachlan // Feb 26, 2013 at 5:54 am

    I am sticking with my preference for gold at its highs (1900 odd) again by year end. It’s just that one has to be concerned about the hard dive we have taken back to that support line. Further, IF it breaks through a lot of selling will take place just as Chris said… I have no doubt. In such a case I would not be too hasty to call the end of the bull market however. Without adequate tax revenues there will either be coordinated QE or we will just sack most of the workers. When the Fed blokes talk about quitting their inflation program I laugh a little to myself. On the other hand I don’t necessarily think any particular part of QE will cause gold to rise. It’s long term. The same money may end weighing on gold in the short term, in a number of ways.
    As for super high (10,000 plus) gold figures that is possible imo but only if desired by the monetary authorities at some stage. That is something which one could spend a lot of time thinking about…”possibly” way too much time imo. See fofoa. Good luck to them but.

  • 15 Greg Atkinson // Feb 26, 2013 at 1:30 pm

    Well it seems some think the party for gold is over..for now at least. On Bloomberg today:

    “The turn in the gold cycle has likely already started,” the Goldman analysts wrote in the report, after predicting an end of gold’s bull run in a Dec. 5 note. “The latest collapse in gold ETF holdings stands in sharp contrast to our assumption that ETF positions were likely driven by longer-term allocation rather than short-term trading.”

    Full article: Gold’s Cycle Seen as Turned by Goldman as ETP Holdings Slump

  • 16 Biker // Feb 26, 2013 at 3:35 pm

    Gold’s Cycle Seen as Turned by Goldman as ETP Holdings Slump

    HaHa…! Did you read the Comments Section?

    (And you think you’ve got problems, Greg?!~ 😀 )

  • 17 Lachlan // Mar 10, 2013 at 2:48 pm

    Gold has sustained it’s weakness and gold shares too with a bit more to come imo. I think now that gold in AUDs will bottom at 1500 before rallying back towards 1750. The bottom may be about 1530 in USD’s. That’s my feeling at present anyhow after watching the market a bit more recently.

  • 18 Greg Atkinson // Mar 12, 2013 at 3:32 pm

    From Bloomberg today:

    “Gold’s worst start to a year in a quarter century and the biggest sales by investors on record are increasing concern that bullion’s longest rally since the end of World War I is ending.

    Investors sold 106.2 metric tons valued at $5.4 billion from exchange-traded products in February, the most since their creation in 2003, data compiled by Bloomberg show. Another 26.1 tons was cut since then. Credit Suisse Group AG and Barclays Plc say the 12-year rally will peak in 2013 and billionaire George Soros reduced his stake in the biggest ETP by 55 percent in the last quarter. Prices are within 4 percent of a bear market after the longest run of monthly losses since 1997.”

    Source:
    Gold Sales From Soros Reveal 12-Year Bull Run Decay: Commodities

    Has the selling started in earnest?

  • 19 Stillgotshoeson // Mar 12, 2013 at 8:38 pm

    Well the common theme there Greg is ETF’s, they are selling paper gold, not the real stuff. There is more paper claims for gold than there is available gold.

    I think they are expecting a move up in gold prices in the near to medium term and don’t want to be left holding paper gold that may not be as useful as having the physical bullion…

  • 20 Matthew // Mar 12, 2013 at 11:35 pm

    This article found its way into the Australian online press today:

    http://www.telegraph.co.uk/finance/personalfinance/investing/gold/9919620/Gold-price-predictions-The-titans-taking-big-bets.html

    I dont have a direct interest in gold, so unlike others will refrain from making outlandish and foolish statements on the topic, seems to me though this writer has straddled the fence quite evenly on the topic!!

  • 21 Greg Atkinson // Mar 15, 2013 at 3:33 pm

    The issue with gold that is often not discussed is supply and demand. The actual demand for industrial gold is way below the supply but what takes up the slack and drives overall demand is basically gold heading into vaults or being made in jewellery.

    So in fact relatively little gold is actually being consumed as such but people still want to pay fairly high prices for something that is in fact not in short supply or even that rare. It’s a funny old world 🙂

  • 22 Lachlan // Apr 14, 2013 at 5:18 pm

    Good news for silver bugs. Bad news underground miners, previously open pitters. Actually nobody died or was hurt.

    http://silverdoctors.com/10-of-us-annual-silver-supply-just-vaporized/

  • 23 Biker // Apr 15, 2013 at 9:24 am

    Yes, a reduction in supply of that claimed magnitude could indicate increased ‘value’, Lachlan.

    Certainly appears better than the current outlook for gold!~

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