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Are Gold and Silver Poised for a Move Higher?


Gold and silver have been relatively quiet since the fall. A major reason for this is investor sentiment remains mixed, but recent data is suggesting that is starting to change and could propel gold and silver higher.

How Sentiment Helps Us Keep Focused on the Facts

When everyone is searching for a reason to be bearish and reinforce their biases, usually that marks a turning point in the trend.

That sentiment extreme alongside the technical chart setup (shown below) helped us get bullish when most others were bearish as we suggested longs in both gold and silver on 8/5/12 accompanied by the following chart and commentary.

After finding support at an all-important level throughout the summer, gold and silver (NYSEARCA:AGQ) both broke out of a downtrend in August setting up the opportunity and stop location which we identified, "Good risk / reward setups such as these are what we look for". By early September, Gold and Silver were on a tear.

Silver rose over 25% to $33 and Gold by means of the Gold Miners Bull 3x (NYSEARCA:NUGT) was up over 60% by late September as sentiment did a 180. Sentiment on the precious metals by late September had now reached into the 80th percentile bulls, an area that often coincides with precious metal tops.

"Silver: Technicals Suggest Very Bullish Long-Term Outlook," proclaimed a popular financial website on September 19, which, combined with the technicals, was right on time to warn us sentiment had again reached an extreme, this time a bullish one, and we should look to take profits.

Our long trade was complete as we noted September 23, "Silver (at $33.48) and gold (at $1750) are at sentiment extremes. A sell/short signal on silver (NYSEARCA:ZSL) is a breakdown of the trend channel (chart and commentary found here) with a stop above this week's high of $34."

The following week prices began to fall, our short signal was triggered, and sentiment again reversed, eventually hit a low in late October where we took short profits. We continue to sit on the sidelines waiting for sentiment to confirm another precious metals (NYSEARCA:DUST) setup.

What Now?

Today, sentiment on the precious metals (NYSEARCA:DBP) remains largely mixed, but is leaning more toward bearishness as a recent headline from supports, "Gold's bull market called into question by bank analysts".

This is a potentially bullish setup as a result of the pessimism (albeit not to the extreme bearishness that accompanied last summer's price lows).

The chart above is also leaning more bullish than bearish as price has leaked the last few months back near summer 2012's support levels. We warned on January 13, "A trendline breakout would be bullish and can be used as a stop location."

Price hasn't given a bullish signal yet, but the potentially negative sentiment would support such a breakout bullish move. We continue to watch a key price level, that when combined with sentiment, should give us our next high probability setup in gold and silver.

Editor's note: This story by Chad Karnes originally appeared on

To read more from ETFguide, see:

Protecting Against the Bursting of a Bond Bubble

Is it Time to Hedge Gold?

Are Equity Investors Too Complacent?
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