Three Signs That the Bottom in Gold & Silver Is Near
Could provide excellent buying opportunity for long-term investors.
Last week, volume declined while gold rose -- at the same time, however, gold prices declined. Volume usually confirms the direction in which the market is headed; this time, it pointed to lower prices. It looked likely that gold would move lower in the short term.
This is exactly what took place during the rest of the week: We had slightly higher prices on gold, silver, and mining stocks in the middle of the week, but they closed lower on Friday. Of course, the key questions here are: Is the bottom already in? Is it safe to get back on the long side of the market?
In short, it seems that we'll go a little lower before we'll reach a local bottom.
Moving on to the current situation, let's begin with a gold chart. (Charts are courtesy of stockcharts.com.)
At first glance, the situation on the gold market looks quite bullish. Gold has advanced substantially from April to June, and has been correcting since the beginning of this month. Corrections are to be expected in any market, and gold is no exception. So until we see evidence that this correction is anything more than just that, we remain bullish in the long run.
Right now the price of gold and also the value of the GLD ETF (GLD) has closed at its long-term support level, represented by a solid blue line, which generally indicates that a rebound is likely.
It's usually useful (and profitable) to put "general rules" into proper context before making any investment decisions. As mentioned above, the price of gold stopped at the rising support line. But did gold rebound in the past when the situation was similar?
1. I've marked 2 such occasions with dashed lines on the above chart. Please note that each time price got to the analogical support line, it broke it only briefly before rising again. This may happen yet again.
2. Additionally, previous bottoms were accompanied by particular signals from the stochastic indicator, as seen on the bottom of the gold chart. The Relative Strength Indicator (RSI) is particularly useful in timing top on the precious metals market. Naturally, there is no perfect tool. RSI isn't very useful in determining bottoms on the precious metals market, however.
Still, there are many more indicators than just the RSI, and one of them proved to be particularly useful in estimating bottoms in the recent past. During the past several days, most meaningful bottoms took place when the stochastic indicator was below the 20 level and it started to rise, thus crossing its moving average; I've marked these situations with red ellipses.
Currently, the stochastic indicator has moved lower, but isn't yet below the 20 level. Therefore, there's another significant confirmation of the previous conclusion: The bottom is near, but has yet to materialize.
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