Gold… Finally Makes New All Time High, Silver Overextended But Still Moving

It’s been a while since gold has given us anything to write about but on the first day of March it made not only a new all time high, but a new all time closing high of $1433.10. Volume on GLD over 17M which is above average but not high enough to confirm a breakout even though the candlestick is a long one and the closing price is higher than the previous high.

The 20, 26, and 50 Day MA’s are all in turning upward and should act as moving support should the price fall back at any time. If the breakout is confirmed within the rest of the week, then $1433 will be the new long term support.

Once again, the 20 Day MA on the weekly chart has acted as support. I predicted back in January that the price would not consolidate much, if at all further than that moving average, and called a bottom of $1325 when gold was at $1345. The absolute bottom was at $1308 and gold is over $100 higher than where it was in mid-January when I made these calls.

Another thing that interesting to point out, the S&P 500 and the DJIA had key reversals today – the same day that gold made a new all time high and silver made (another) post Hunt brothers high.

The bounce from the last two days appears to have been a short setup as today’s candle bearishly engulfed the previous one. The S&P also closed below the 20 and 26 Day MA’s and will likely make a run at the 50 before the end of the week. Last Sunday in a podcast with the Wall Street For Main Street Co-founders I repeated what I said last week – that gold would recover when the equities market peaks and Portugal’s sovereign debt concerns makes headlines. I think (but I’m not calling it) that the stock market could be peaking here as gold now looks more attractive to investors with the uncertainty in the middle east and the certain bailout for Portugal that will come in April.

I also see this as a strong buying opportunity for the dollar index. A reversal in the equities market combined with civil unrest in the middle east, the flight to gold, and rampant inflation in emerging markets is a signal of coming strength in the US dollar. I’d be surprised if the dollar falls much lower from current levels. The best way the play this is probably though out of the money UUP calls. I’d probably take a $28 call for Jan 2012 due to the large volume figures on that strike price.

Silver is in an uptrend similar to gold though the chart is much more bullish at the moment. Even Brian Kelly from CNBC had a segment the other day where he discussed the supply fundamentals and how there is a more demand than there is product.

This uptrend is a testament to how undervalued silver is and how bullish the market is becoming on the white metal. Over 20% in one month is the steepness of the trendline. I think that this trendline will have to break sooner rather than later however the good news is that like gold, the moving averages are turning bullish and will act as support when the trend breaks. Long term support will likely be around $30, but the trend is so strong that like from last August to December, horizontal support should be disregarded and the 20 Day MA should be the moving support for any consolidations. In other words, I believe that when this silver temporarily loses steam, it won’t make it to $30 before buying pressure comes back.

The bottom I called in silver was much more precise than the bottom price I suggested for gold. I said after the close on Jan 28th that silver had hit a bottom and that was in fact the exact day where silver made its lowest low of the correction. It has since moved nearly 25% higher and after a brief consolidation that should be coming up soon, has a lot more ground that it will cover over the next weeks, months, and years.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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