Gold and Silver Market Updates

Clive Maund
Jan 9, 2006

Gold

Gold had a roller-coaster week, rising strongly early in the week to challenge its early December highs, and then scared a lot of traders on Thursday by looking like it was double-topping with those highs, before a really robust rally on Friday set the stage for a probable break to higher levels next week. That's the latest update in a nutshell - what follows is detail.

It is rather a long time since the last update - too long it has to be said, and in the intervening period gold has completed its overreaction to support in the vicinity of its 50-day moving average, from which it has rallied, as expected. This was a strong rally which brought the price back up to the December highs quickly, a critical juncture because of the danger of a double-top forming. For this reason the latest Gold Market update has been held back a couple of days in order to see how gold would behave on reaching this key level. A striking development on this latest rally has been the remarkable strength shown by the larger gold stocks. This, just by itself, points to continued strength in gold.

On Thursday gold reacted back sharply, and many traders understandably thought "Here we go again - another double-top". In a sense the double-top is a self-fulfilling prophecy, because many traders take profits when the price rises to an earlier high - because of the danger of a double-top forming, and their selling ensures that one occurs. The reaction in silver was much more pronounced on Thursday, with traders witnessing a drop of nerve-wracking proportions. By Thursday's close things were looking grim short-term for both metals. Thus it was that Friday was set up to be an important day. The Gold and Silver Market updates were postponed, to see who would have possession of the ball at Friday's close - the bulls or the bears.

As is blatantly obvious on the 6-month chart, the bulls were in control by Friday's close, with gold putting in a sparkling performance - not for nothing were those large gold stocks powering ahead. Silver also staged a remarkable turnaround, confirming the strength in gold. Thus, although there is no argument about this market being overbought, for it is obvious that it is by the large gap between the gold price and its 200-day moving average, it now looks set to continue higher in the near-term. There is room for further advance, despite the price being very close to the intraday high at the early December peak, for as we can see at the top and bottom of the chart, the RSI and MACD indicators are not as overbought as they were back then.

On the 5-year chart we can see that if gold does break higher here it will mean a break above the return line of the long-term channel shown, that will lead to acceleration of the uptrend.

Conclusion: although gold has still not broken above its December intraday highs, and thus there is still the possibility of it double-topping with those highs, the action last week, especially on Friday, and the recent action in gold stocks, especially large-cap stocks, indicates a high probability that gold will break significantly higher next week.

Silver

Silver is now largely subject to the same dynamics as gold, and this is reflected in the current remarkable similarity between the silver and gold charts. The powerful uptrends in both metals are being driven by the same overriding forces, which are tending to make the fundamental differences in the supply and demand situation between gold and silver look like irrelevant detail. This being so, what has been written in the latest Gold Market update, above, applies in almost equal measure to silver, and thus I am largely relieved of the task of writing a separate Silver Market update, and you don't have to read the same arguments twice.

Thus, for the outlook for Silver you are referred to the Gold Market update, with the addition of the detail differences set out here.

The striking resemblance between the silver and gold charts is obvious when the two 6-month charts are placed beneath each other, as they are here. On these charts we can see that silver experienced a much more severe reaction than gold on Thursday, but then went on to stage a fine strong recovery on Friday, closing near the high, and above Thursday's close. Thus, like gold, there is a strong probability that silver will break above its December highs next week, despite being considerably overbought as shown by the gap between the price and its 200-day moving average. Remember that in a powerful bull market advance an overbought condition can persist for a long time as the price continues higher.

The chief difference between silver and gold on the 5-year charts is that whereas gold's uptrend has been comparatively steady, the insanely overbought condition that had developed in silver by April 04 led to a long, roughly triangular zone of consolidation before the advance resumed.

Clive Maund
email: support@clivemaund.com
website: www.clivemaund.com

Charts courtesy of StockCharts.com.

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