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Precious Metals Charts Point to Lower Prices.

September 29th, 2011 · Chris Vermeulen · 6 Comments

Over the past week precious metal investors have had a wakeup call from their big shiny nest eggs. Last week’s free fall in both gold and silver spot prices was enough to get investors into a panic. More on this in a minute though…

The fall was triggered by three key factors which caused the powerful move down. The first factor is based on pure technical analysis (price and volume patterns). Because the metals had such a strong run up this summer and prices had moved to far too fast, it is only natural so see price correct back to a normal price level. In general any investment that surges in one direction in a short period of time almost always falls back down shortly after. As I stated in my weekly report on August 31st, “gold is forming a topping pattern and all investors should take profits or tighten protective stops (exit orders)”. Three days later gold popped to the new high completing the pattern and was quickly sold off which continues to unfolding as we speak from $1920 down to $1532 in only a couple weeks.

The second factor which I think had the most power behind the drop were the margin requirements changes. This new rule literally overnight caused traders and investors holding to much of the metals in their account to liquidate (sell) their positions without having any say in the matter. That is when the most damage was done to the price of gold and silver.

The key factor was the US Dollar which rocketed higher and adding a lot of pressure to the metals. I also covered this in my Aug 31st report in detail. Overall, past few years we have seen both gold and silver move in opposite direction of the dollar. I don’t expect that to change much going forward. Back in August the US Dollar was coiling (building power) and it was only a matter of time before it would explode to the up side and rallied. This high probability move in the dollar was what triggered me to exit our long gold positions shortly after. I expected the dollar rally to last a month or more and that means we would see a lot of pressure on equities and metals going forward.

Now keep in mind, if Greece or other countries continue to get worse then we could see the dollar and gold move higher together as they are seen as the safe haven at this time. But with the nature of the two I am anticipating a rising dollar and sideways trading range for gold.

Ok, so back to precious metals investor sentiment…

Last Friday and all of this week I have been getting emails from traders and friends saying they are going to sell their gold and silver because they are concerned metals will continue to fall and because many of them are now losing money after chasing prices higher through the summer. The good news is that one of my best indicators for helping to time market tops and bottoms is to just read my emails and answer the phone. During market tops, generally the final month when prices are soaring to new highs every day/week is when everyone contacts me and says they just bought gold or are about to buy more gold cause it’s such a great investment. Once I start getting 2-5 of these messages a day alarms start going off in my head. This works the same with market bottoms. So with everyone now in a panic and selling their positions I feel we are darn close to one if we did not see it already…

Let’s take a look at the charts…

Silver Spot / Futures Price Chart

As you can see on the hard right edge silver is forming a very similar pattern which happened this past spring. I would like to note that this type of pattern is typical with extreme market selloffs as to how they generally bottom. I am anticipating silver trades in this range for a couple months and that we could see lower prices in the near term. But my upside target for silver in the coming few months is the $35-$36 level.

Silver Spot Trading - SLV ETF Trading Newsletter

Gold Spot / Futures Price Chart

Gold is doing much the same as silver but I have noticed that when gold falls hard the second dip generally does not make a new low as often. If we do get a new low, all the better for buying on the dip but overall I feel gold should trade sideways for a couple months. My upside target for gold is the $1750-$1775 area.

Gold Spot Trading - GLD ETF Trading Newsletter

US Dollar Index Price Chart

The Dollar index is looking ripe for another bounce and possibly another rally to new highs in the coming week. If this happens then we should see the SP500 short position (SDS) which we took Tuesday afternoon (Sept 27th) to continue rocketing another 5-8% in our favour again.

Dollar Index Trading Newsletter - UUP ETF Trading Newsletter

Mid-Week Trading Conclusion:

In short, I feel the US dollar is going to continue higher and that will put the most pressure on stocks, oil and silver. Depending how things evolve overseas gold could hold up and possibly rise with the dollar.

So far subscribers have pocketed over 40% gains this month using ETFs on the SP500, Dollar and Oil and are holding another winning trade in the SDS etf taking partial profits today. If you would like learn more about etf trading and receive my daily pre-market videos, intraday updates and detailed trade alerts which even the most novice trader can follow then join my free trading education newsletter and my premium trading service here:

6 responses so far ↓

  • 1 Lachlan // Sep 29, 2011 at 9:25 pm

    USDollar bulls will only obtain limited joy from Euro mayhem. For six months the markets have been bearish and there is not really much technical damage considering all the hype. But the shake-out on the short dollar trade grinds on.

  • 2 Lachlan // Oct 14, 2011 at 9:19 am

    “Over the past week precious metal investors have had a wakeup call from their big shiny nest eggs.”
    Maybe however the sell off has been an anomaly of paper markets like futures rather than physical markets which are as always running ahead. Prices for physical metal have changed much less by comparison and real metals are harder or impossible in some cases to obtain. eg perth mint Ag kaola 1 0z coins today about $40 ea
    A big dump in prices was always on the cards with paper so prevalent in the market…apparently 100 to one. I guess it could be pushed even further down although I am still waiting for the second leg up from the AUD gold pennant which is in a retest of support/ consolidation at present.

    Hoping to buy NCM at 30 soon Shoes…if it gets there. A good pivot spot.

  • 3 Lachlan // Oct 14, 2011 at 10:01 am

    I probably just hopelessly confused people by referring to USD and AUD prices for metals in the same paragraph.

    Nice day to talk to myself here it seems….what’s new then 😉

  • 4 Greg Atkinson // Oct 14, 2011 at 10:25 am

    The focus on AUD vs USD is a touch overdone in my opinion since just about anything is rising against the USD at the moment including by collection of old beer coasters.

    As for gold, well George Soros sold his positions so that says something. I reckon at some point some government holdings of gold in Europe(and maybe even the U.S?) will have to be sold to get their debt mountains under control. As I recall this is what South Korea did when they were technically bankrupt around 1997 and the price of gold fell quite sharply.

  • 5 Lachlan // Oct 14, 2011 at 12:58 pm

    Gold has also risen against the strong AUD by 350% off its lows.

    Who bought Korea’s gold…the winner/conqueror 😉

  • 6 Stillgotshoeson // Dec 20, 2011 at 2:30 pm

    NCM Close enough to the $30 to make it worthwhile to accumulate some more Lachlan…. so I did 🙂

    Further falls will see me add a few more.. That being said, I am near my % limit on a single stock so won’t be buying much more.. circa 500 or so.

    Current order for more of my Bolivians is slowly moving up the order queue. Volumes are not very high. Trading on a tight range too.

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