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VIDEOA Short-Term Correction for Gold, Silver?
By
Przemyslaw Radomski
Jul 27, 2009 8:45 am
Consolidation may be necessary before any break to the upside.
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This week, precious metals and the corresponding equities rose (as mentioned earlier) at the beginning of the week, and have been mostly trading sideways. But before we sink our teeth into technical analysis of the PM markets, I want to bring you a piece of news regarding the investment demand for gold.
A report said that fears of hyperinflation, the grim economic news, and the success of gold ETFs has led to a run on the yellow metal. Swiss banks are running out of secure storage space for gold bullion held by investors and institutions. When you’re holding gold (especially at these prices), you need security guards, surveillance cameras, and room -- lots of it. One Swiss bank relocated its stored silver bullion to another site to make more room for gold.
I suggest keeping about 20% of capital in physical gold and silver, with a mix determined by your age, risk preferences, and whether or not you believe inflation is in the cards. If you can’t hold it yourself in a safe place, I suggest being very careful where you store it. The story about the shortage of storage space in the vaults of venerable Swiss banks tells me that long-term gold investors are out in force and that gold is in its groove. The investment demand has become an even more important driver of gold prices.
Please take a look at the table (source: World Gold Council) below for details.
Not only has the investment demand increased by 64% in 2008, but the news about the storage problem signals that investment demand is still rising. This puts an upward pressure on gold prices.
We’ll begin with the general stock market, which has moved higher almost on a daily basis during the last 2 weeks.
General Stock Market
With regard to the previous Friday in which prices barely moved, but the volume was relatively small: "Had we seen higher prices along with visibly declining volume, we could have inferred that a correction is likely."
This is exactly what took place this week. We‘ve just seen higher values of main stock indices along with relatively low volume, so we might infer that a correction is likely. This would be confirmed by the high value of the RSI Indicator, as marked on the chart with a red ellipse. The most visible support level is currently just above the 96 level ($96.11) in the SPY ETF.
No positions in stocks mentioned.
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