Gold and Silver On the Verge of a Big Move
Light trading volume into year end could lead us into a big rally in 2012.
The question everyone keeps asking is when can I buy gold and silver?
Unfortunately that is not a simple answer. With the news unfolding across the pond and the bullish outlook for the US Dollar index, the next move is a coin toss. That being said, I do feel a large move brewing in the marketplace so I am preparing for fireworks in the first quarter of 2012.
If you step back and look at the weekly trend charts of the dollar index and the S&P 500 index, you will see the strength in the dollar along with a possible stop in equities forming. What these charts are telling is that in the next 3 months we should know if stocks and commodities are going to start another multi-month rally or roll over and start a bear market selloff.
With the holiday season nearing and hedge fund managers sitting on the sidelines just waiting for their year end performance bonuses, I cannot conceive any large selloff start until January. Selloffs in the market require strong volume and the second half of December is not a time of heavy trading volume.
This leaves us with a light volume holiday season, major issues overseas, and no big money players willing to cause waves.
So let's take a quick look at the charts and find out where the line in the sand is for the dollar index, gold, and silver.
Dollar Index Daily Chart
This week we have seen a strong shift of money out of risk off assets (bonds) and into risk off (stocks). This shift is happening before the dollar has broken down, indicating the dollar may be topping. This could be an early warning of higher stock prices going into year end. Also note that light volume market conditions also favor higher prices.
Gold Price Daily Chart
Gold could still head lower but at this point it is holding a key support level. If we see the dollar break down below its green support trendline then I expect gold to have a firm bounce to the $1675-$1700 level.
Silver Price Daily Chart
Silver continues to hold a key support level. If the dollar breaks down, silver should bounce to the $31.50-$32 area. But if the dollar continues to rally then silver and gold may drop sharply.
Mid-Week Trend Conclusion:
In short, I think the best thing to do is enjoy the holiday season with family and friends. Trading right now is not that great and the market is giving mixed signals. I am keeping my eyes on the market in case it flashes a low risk setup.
Editor's Note: Chris Vermeulen offers more content at his site, TheGoldAndOilGuy.com.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter