Despite Calls for Higher Gold and Silver Prices, the Charts Tell a Different Story

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August 6, 2016 7:30am NYSE:GLD NYSE:SLV

gold silver 600X300Edge Trader Plus: Despite the ongoing calls for gold and silver to take off, imminently, the charts do not support a runaway market to the upside.


Straight lines are frequently drawn to represent support or resistance when, in fact, both are the function of an area as opposed to a fixed price point.  The two horizontal lines on the weekly gold chart originated from prior failed swing highs.  Price broke above the lower one but fell just short of the upper resistance line.  Yet, price was contained within that area.

The purpose is to take note of where price has failed previously, and then watch the development of how price reacts on a subsequent retest.  It is the basis for simply being prepared to respond at support/resistance areas.  For example, one can make a huge mistake buying new positions at an area of resistance because a reaction is more probable than upside continuation.

The wide range, poor close bar of 4 weeks ago was a red flag event.  It was a message from the market that sellers overwhelmed buyers and pushed price down with buyers unable to sustain the rally, and the selling reaction occurred at a resistance area, answering the how question of the character of price development.  Last week was a retest of 4 weeks ago, and we then mentioned how volume was peaking at the high of the rally, another red flag.

GC W 6 Aug 16

A more detailed picture emerges on the daily chart.  The early July high was an overlapping of 4 TDs, a sign of a battle between the opposing forces of buyers v sellers.  After the 4th day, price broke lower making those 4 overlapping bars an area of resistance to be watched on any retest.  The retest came last week.

We made note of how the volume increased as price rallied, and that is a red flag due to sellers increasing their activity to challenge buyers.  Price stalled in the beginning of trade for August.  We had recommended long positions, previously, and opted to exit at the end of July based on the read we just provided.  Price did continue higher from our exit, but after Friday, price is now much lower than the exit.  The timing was not pluperfect, but it was effective.

Friday’s high volume accompanied the selling, and that suggests either a retest of the lower end of the TR, or several more TDs before buyers can regain control.  Now a read of the opposite is required, how price reacts on the decline to indicate a change in sentiment from sellers back to buyers.  Our read says there is no hurry to get long in the paper market.

GC D 6 Aug 16

The SPDR Gold Trust ETF (NYSE:GLD) closed down $2.32 (-1.79%) to $127.55 per share on Friday. The most popular gold ETF has gained 25.71% year-to-date, but is essentially flat over the past 25 trading days.

Silver Breaking Down?

Silver also had a weekly range of resistance but unlike gold, silver was unable to even penetrate the lower horizontal resistance line, and that said silver was relatively weaker than gold structurally in the charts.

SI W 6 Aug 16

The early price activity warning in early July did not occur in gold as it did in silver.  We did not give that bar enough attention because it become controlling for how silver developed in the next month + of trading.  The failed swing high, 3 TDs later, did function as an almost precise failed high from last week, and Friday’s lack of upside follow through after Thursday morning’s strong volume rally was the market message that price was sure to correct.

The iShares Silver Trust ETF (NYSE:SLV) closed at $18.71 per share on Friday, down $0.64 (-3.31%). The largest silver ETF has gained nearly 42% year-to-date, but like GLD, has been consolidating those gains over the past 25 trading sessions.

As with gold, there is no hurry to be long in the paper market while the tenor of the current correction becomes more defined.

The ongoing acquisition of physical gold and silver remains as a priority.  For sure, there are no cogent reasons for selling anything previously acquired.  Buy and hold is the anthem for PM stackers, and that will not change likely for the next several years.

SI D 6 Aug 16

This post is brought to you by Edge Trader Plus.


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