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Technically Speaking, Precious Metals Is a Mixed Bag


Volatility is not a bad thing: Money is made on both sides of the trade. Here are the levels to watch in the weeks ahead.

Everyone seems to have a take on gold and silver these days. From government debt to a weak dollar/inflation to debt destruction/deflation... it's a highly political and opinionated space that catches both sides talking a long-term book on a daily basis. And although both sides make sound arguments about where the price of said precious metals may be heading, it's often on a time continuum that may not be today's business (price-wise).

Why? Because commodity prices have not, and often do not, move in a straight line (see definition of "volatility"). Take the past year for example, very bumpy and downward sloping. But money was made on both sides. So if bulls or bears are concerned about making an entry into the space for a short-term trade or longer term investment, they need to be aware of the volatility, as well as the technical price support and resistance levels. Nobody wants to overpay, and everyone wants to make money.

I often write about technical levels because I think it's important for traders and investors to understand that if you do your technical and fundamental homework (and apply a little patience), you can firm up an investment plan that minimizes risk by highlighting where to buy (into support) and where to sell (into resistance). And whether one chooses to focus on near- or long-term technical charts are a product of your investment time frame and risk profile.

I'll let the charts speak for themselves, but I'll share a few bullet points prior to the charts:

Gold and Silver
  • Unenthusiastic move through 1665 for gold last week, closing the week at 1660. Resistance overhead at 1675-80, then 1700, then 1790. Support below at 1650, then 1625, then 1575-1600.
  • Ditto for silver, sidewinding its way to a 31.54 weekly close. Some may call it coiling under its downtrend line; some may say it is pausing after a sizable "fakeout" and sell off. Still too early to tell. Let the price prove itself before making big bets.
  • Seasonal and technical timing targeting a bounce by the end of April/early May.
  • Spain and European debt starting to make headlines and there is talk of QE3 picking up after lackluster US jobs report. If either show their face, or if the "long term" US debt picture heats up during the presidential election campaign, the metals should rise.
  • Magnitude of bounce is likely to be dampened by last year's rounded top and technically "heavy" Gold Bugs Index (HUI) and Gold and Silver Index (XAU). In fact, recent "heaviness" combined with DeMark weekly setup counts have the metals on alert for a couple more weeks.
  • Watch the dollar over coming days/weeks. It's currently resting near lower uptrend support. Inverse correlation (higher dollar bad for metals, lower dollar good for metals).
Trade safe, and good luck in the week ahead.

Gold Charts

Gold Bugs Index

Gold and Silver Index

Silver Charts


Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market.

Twitter: @andrewnyquist
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No positions in stocks mentioned.

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