Metals Trade: How Much Lower Can Gold & Silver Really Go? (GLD, GDX, AGQ, ZSL, SLV)

Moby Waller:  Gold hasn’t seen any kind of real pullback in its uptrend since 2008.  Was a key high reached in recent months?  It’s certainly possible, given how much Silver has already corrected.  In which case, how low is Gold likely to fall before it finds key long-term support?

We’ll use the actively trading ETFs (NYSE:GLD) for Gold and (NYSE:SLV) for Silver in this examination, because these are widely available to be traded by virtually all investors/traders.

Taking a look at the big picture GLD Monthly multi-year chart below, you can see that the yellow metal has been on an incredibly steady uptrend since bottoming in 2008.  Since breaching above its 10-month simple moving average (aqua trendline) in late-2008, GLD has tested but never closed below this trendline. 

So this is the obvious first big test should GLD continue to show some weakness.  That moving average is currently at 139.01 and uptrending, about 4.8% below current levels.  The next logical moving average I would look at it if we do close below the 10 month would be the 20 month (purple trendline), which is currently at 126.55 and uptrending.  That’s over 13% below current levels — but again not we haven’t even been below the 10 month MA in some time, much less testing the 20 month.

However, if we have reached a significant top in 2011, then we can transpose a Fibonacci Retracement based on the 2008 low (68.81) to the 2011 high (153.61).  Normally when such a big uptrend does finally correct, we would expect to see it test the 38.2% Fibonacci level (in this case at 121.22) or even down to the 50% retracement level (111.21).

Gold Monthly Chart

 

Why would Gold pull back this much?  Well Gold’s “companion” metal Silver has already seen a sharp correction.  It must be kept in mind that GLD ran up only 123% from its 2008 lows to 2011 highs, while SLV ran up an astounding 472% during a similar time frame before pulling back.

Nonetheless, you can see on the long-term Monthly SLV chart below that we pretty clearly made a significant high in April of this year.  And where have we pulled back to?  Well, SLV is currently sitting right around 2 potential support areas — it’s just below the 38.2% Fibonacci Retracement level of 33.11 and just above the uptrending 10 month simple moving average at 31.78.

If we don’t hold this retracement level and simple moving average, one would logically anticipate that SLV would test the key round 50% retracement level of 28.40 sooner or later.  That’s about 13% below current levels.  Remember that this a monthly chart so things can take a bit of time to play out.  A further downside move to the 61.8% area and uptrending 20 month simple moving average is also possible, but I wouldn’t anticipate that occurring (or if it does it would be a great buying opportunity).

Silver Monthly Chart

 

To sum, when a big long-term uptrend breaks down, we can point to big logical targets such as simple moving averages and Fibonacci Retracement levels for support.  If Gold has in fact made a significant high recently, then downside could be as close as the 10 month MA or much, much lower if it ends up correcting like Silver did/is.

We give real-time specific trade recommendations on GLD, SLV and other ETFs in the ETF Tradr program, no currently open position on them.

Related ETFs: SPDR Gold ETF (NYSE:GLD), Market Vectors Gold Miners ETF (NYSE:GDX), ProShares Ultra Silver (NYSE:AGQ), ProShares UltraShort Silver (NYSE:ZSL), iShares Silver Trust (NYSE:SLV).

Written By Moby Waller From Big Trends

Former CBOE Market Maker and European Options Trader, Moby Waller is co-portfolio manager of the ETF Tradr program (http://www.bigtrends.com/etftradr) with BigTrends.com. Moby began trading stocks and options at 19 years old. His initial trading, options and technical analysis expertise is largely “self-taught”, although he is a National Merit Finalist and graduated from American University with a major in Political Science. Moby’s analysis and writing have been featured on BigTrends.com, Barron’s, Yahoo, SeekingAlpha, and thestreet.


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