Gold & Silver on the Verge Of Another Drop

From Chris Vermeulen at The Gold and Oil Guy......

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 31^st, “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 31^st 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.

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.

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 27^th) to continue rocketing another 5-8% in our favour again.

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 at The Gold and Oil Guy and take your emotions out of your trading!

Gold Catches Traders by Surprise (video analysis)

The move down in gold yesterday surprised many traders and flashed an exit signal based on MarketClub's daily "Trade Triangle" technology. As we have mentioned before, we felt that gold was in a broad trading range and were not optimistic that it would shoot higher.

The action yesterday confirms that we have more of a two way market. We expect we'll see further selling on any rallies from this level.

Just click here to watch today's video, where we'll share with you some thoughts we have on gold based on one important element: how gold energy fields propel this market.

Please feel free to leave a comment letting us know what you think of the video and the direction of this gold market.

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Gold May Gain on Concern Dollar Has Rallied Too Far

Gold, little changed in New York today, may climb on speculation the dollar’s strength is overdone, increasing bullion’s appeal as an alternative asset. The U.S. Dollar Index, a six currency gauge of the greenback’s strength, added 0.2 percent after the agreement brokered by the European Union to help Greece weather its debt crisis offered few details. Industrial commodities including copper rose as reports in Australia and China signaled a stronger economic recovery.

“A lot of people believe that the dollar’s risen too far too fast and are flocking to gold,” said Tom Schweer, a senior market strategist at LaSalle Futures Group Inc. in Chicago. Gold may also be benefiting from higher prices of other commodities, he said. Gold futures for April delivery added $3.10, or 0.3 percent, to $1,079.40 an ounce on the New York Mercantile Exchange’s Comex unit at 9:26 a.m. local time. Gold for immediate delivery in London was 0.7 percent higher at $1,079.10.

The metal increased to $1,079.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,069.50 at yesterday’s afternoon fixing. The dollar has gained as concern about Greece’s finances weighed on the euro.
“We expect dips to continue to draw investment interest” on sovereign debt concerns, while “the positive economic outlook in the Asian region has given gold a lift,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.....Read the entire article.


Just click here for your FREE trend analysis of gold ETF GLD


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Gold Moves Lower, Appears The Bears Have The Near Term Advantage

February gold was lower overnight as it extends this week's decline. Stochastics and the RSI are diverging but are turning bearish signaling that sideways to lower prices are possible near term.

If February extends this winter's decline, the 38% retracement level of the 2008-2009 rally crossing at 1032.60 is the next downside target. Multiple closes above the 20 day moving average crossing at 1108.50 are needed to confirm that a short term low has been posted.

Friday's pivot point for gold is 1078.00

First resistance is the 10 day moving average crossing at 1089.60
Second resistance is the 20 day moving average crossing at 1108.50

First support is the overnight low crossing at 1052.40
Second support is the 38% retracement level of the 2008-2009 rally crossing at 1032.60

The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010

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Have Gold Prices Flat Lined?

Nicholas Brooks, head of research and investment strategy for ETF Securities, argues that gold prices could dip even further as the U.S. dollar rallies.



The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010

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Gold Moves Higher, Bulls Appear to Have The Near Term Advantage

Gold traded slightly higher overnight as it extends Tuesday's rally above the 20 day moving average crossing at 1116.50. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

Multiple closes above the 20 day moving average crossing at 1116.50 are needed to confirm that a short term low has been posted. If February renews this year's decline, the 38% retracement level of the 2008-2009 rally crossing at 1032.60 is the next downside target.

Wednesday's pivot point is 1112.47

First resistance is the overnight high crossing at 1124.90
Second resistance is January's high crossing at 1163.00

First support is the 10 day moving average crossing at 1097.70
Second support is last Thursday's low crossing at 1073.20

Get Started Trading Gold Now....With 10 FREE Trading Lessons

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New Video: Gold Could Hit Highs Again

The price of gold could push back up to all-time highs, Nicole Elliott from Mizuho Corporate Bank told CNBC Tuesday. Elliott also takes a technical look at short sterling interest rate futures.




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Gold Continues The January Slide

February gold was slightly lower overnight as it continues to extend the decline off January's high. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.

If February extends this year's decline, the 38% retracement level of the 2008-2009 rally crossing at 1032.60 is the next downside target. Closes above the 20 day moving average crossing at 1115.40 would temper the near term bearish outlook.

Gold pivot point for Monday is 1083.40

First resistance is the 10 day moving average crossing at 1097.10
Second resistance is the 20 day moving average crossing at 1115.40

First support is last Thursday's low crossing at 1073.20
Second support is the 38% retracement level of the 2008-2009 rally crossing at 1032.60

Get Started Trading Gold Now....With 10 FREE Trading Lessons

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Gold Weekly Technical Outlook

Gold' fall from 1163 continued last week and is reached as low as 1075, breaking 1075.2 support briefly. INitial bias remains on the downside this week as long as 1105.1 minor resistance holds As noted before, whole decline from 1127.5 should be resuming and a break of 1075.0 will target 100% projection of 1227.5 to 1075.2 from 1163 at 1010.7 next. On the upside, above 1105.1 will turn intraday bias neutral and bring recovery. But upside should be limited below 1163 resistance and bring fall resumption.

In the bigger picture, gold has made a medium term top at 1227.5 and correction from there is likely still in progress to 100% projection of 1227.2 to 1075.2 from 1163 at 1010.7, which is close to 1000 psychological level. However, we'd expect such correction to be contained there at around 1000 psychological level and bring resumption of the whole up trend from 2008 low of 681. A break above 1163 will indicate that such correction has completed and will turn outlook bullish for another high above 1227.5.

In the long term picture, rise from 681 is treated as resumption of the long term up trend from 1999 low of 253 after interim consolidation from 1033.9 has completed in form of an expanding triangle. Next long term target is 100% projection of 253 to 1033.9 from 681 at 1460 level. We'll hold on to the bullish view as long as 931.3 structural support holds.....Comex Gold Continuous Contract 4 Hours Chart.

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Are Commodities and the Dow Index Dead?

It was a heart pounding week on Wall Street as traders and investors locked in profits during 2010’s first round of earnings season. While it is normal to see selling of shares after good news hits the market, last weeks melt down was over exaggerated and for good reasons.

In short, we expected good earnings and that is why the markets have been crawling higher the past couple months (buy on rumor, sell on news). But what made last weeks sell off so strong was the fact the market was way overbought on the short term time frame and looking ready for a correction already. So we saw twice the selling pressure crammed into one week.

Looking back at a 12 year chart of the Dow Jones Industrial Average we can see the market is now trading at a major resistance level. There are two scenarios the market will likely follow in the coming 12 months. And it could take a year for each of these scenarios to unfold.

Scenario #1 – The market could top then start heading lower to test the 2009 March low. I don’t want this but it could still happen. Topping is a process. Unlike most bottoms which happen very quickly, tops tend to drag out much longer. In this case I figure we are looking at 4-12 month time frame for the market to truly roll over and confirm that we are in a major bear market again.

Scenario #2 – If the market holds up relatively well and forms a bull flag then we can expect to see higher prices in the future. If this happens it will take 4-12 months to unfold also.

Both scenarios have characteristics associated with them, so as the market progresses I will update on the market internals which will help tell us if the underlying market is holding up well or deteriorating. Only time will tell and we will play it one candle at a time.



Gold Stocks – Rockets or Rocks?

The gold stock index closed below its support trend line which held up for over a year. This is not a good sign for gold or gold stocks but there is light at the end of the tunnel.

Simple technical analysis is telling us to be cautious at these price levels. If we zoom way out on the charts the current price level and chart patterns on these charts scare me. The gold stock/Gold ratio chart is trading under resistance and the HUI (gold stock index) is trading near the 2008 high. What I do not like is the technical breakdown on the HUI monthly chart. You can see the trend line break on the chart with my small zoomed in picture.

The good news is that everything looks to be extremely over sold on the 60 minute charts so I am expecting a bounce across the entire market for a 1-5 day dead cat bounce. Friday we did see gold stocks move up strong off their lows out performing the price of gold. This is positive for gold and stocks. Depending on how that unfolds we could take a short term momentum play to profit from a possible leg lower.



Precious Metals ETF Daily Charts – Gold & Silver
Gold and silver lost some shine last week as they plunged towards their next support level. A bounce is expected but then I feel we are heading lower and this will likely shake out the majority of traders before starting another rally higher.



Energy Fund Trading – USO & UNG



Commodity and Stock Market Index Trading Conclusion:
This month looks and feels like last Jan – March, but reversed. The market is now getting choppy as the bulls and bears fight for direction making is difficult to swing trade. Times like these are best for intraday traders, not swing traders. Trading tops is actually much more difficult than trading a bottoming market in my opinion so I will be picky with trade setups. My number one goal is to preserve capital and avoid choppy market conditions as part of managing risk.

Final trading thoughts, I look for the broad market to get a possible bounce this week, but I feel lower prices are still to come. The USO oil fund looks prime for the picking and that could be our next trade.

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