Now Is Time To Buy Gold, But Quit Silver

Posted on by Aibek Burabayev

Aibek Burabayev - INO.com Contributor - Metals


Dear INO.com Readers,

Last week I recommended you to be patient and wait until Gold finishes its pullback. The most important thing was to see if the neckline of an Inverse Head And Shoulders pattern and Symmetrical Triangle’s upside (highlighted in red) would stay safe. As you can see, Wednesday and Thursday candles couldn’t break below the support and this ideal pullback was amazingly precise. Moreover, Thursday’s candle appeared to be an Inverted Hammer. An Inverted Hammer is a reverse candle shaped on the troughs of a downtrend when the open and low are at the same level. The market reversed up on Friday confirming what the candle had suggested. On top of this, RSI also kept its support intact adding to the reversal behavior of the price. And the final touch is from possible uptrend development (highlighted in dashed green parallel lines) which now has three consequent bottoms adding to the power of the channel. So, we have an ideal pullback of the price. This is a healthy sign for the bulls, as its easier now to gain enough momentum from RSI’s low to soar back above $1300. Now, my patient friends, it is safe to buy gold above the Inverted Hammer’s high at $1233, with a target at $1300 (just below recent peak - buy level and target are highlighted in green arrows). And as always ,please don’t forget to put your stop below the neckline at $1212 ($3 below support highlighted in red). Risk is 1.7% ($21), reward is 5.4% ($67).

Gold / Dollar - Inverted Hammer 2015

Buyback Short and Stay Neutral on Silver

In my first February post, I suggested selling Silver at $17.18 level, with a target at $13.5 and stop above $18.5. Either side hasn’t been reached so far. Two weeks are lost inside of a tiny $1 range, between $16.6 low and $17.7 high. An indecisive market, like any indecisive behavior, is frustrating. We’re losing time and money. But, should we suffer? I don’t believe that we should. Price is revolving around a Double Bottom neckline (highlighted in brown) located at $17.3 level. It is worth to pay attention to the amplitude of the seesaw motion. The first zigzag occurred in January and had a $3 range. Currently we are seeing a $2 swing. Therefore, I think gap should explode in the coming weeks when pressure will peak.

Silver / Dollar Double Bottom 2015

So, for now, I will suggest that you quit Silver with a small loss of 14 cents (entry $17.18 versus current $17.32) and wait until a clearer picture appears on the chart. Please watch the following range bounds: $16.5 on the downside (October 2014 and February 2015 low areas; highlighted in green dashed line) and $18.7-$19 (Descending Triangle’s base - highlighted in red dashed line and trendline resistance highlighted in red vertical line).

One can try his luck in range trading, by buying support and selling into resistance. In my experience, trading in a range with no momentum is no fun. I will update you when it’s time to put your finger on the trigger.

Special Note for Gold and Silver

I shared two different opinions for two similarly behaving metals. Wonder why?

Although these are both precious metals, they have a special ratio between them which makes their motions different.

In December, I dedicated my post to Gold/Silver ratio with an outstanding “Diamond” chart pattern. The breakout target was at the 109 oz level. It means that Gold is streaming sky high versus Silver. Compared to the current level at 71 oz, it is more than 1.5 fold Gold’s price. For instance, let’s take today’s views: if Gold will reach the short-term target at $1300, but Silver will stay unmoved (it makes $1 move in two weeks) then the ratio will be $1300/$17.3 = 75.14 oz, a modest gain from current 71 oz level. Simple math gives us broader view for this situation and I hope it will stop you from “Gold catch-up” Silver games. I will keep you updated separately on both metals and quite often views can be different.

Lucky and Intelligent Trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

14 thoughts on “Now Is Time To Buy Gold, But Quit Silver”

  1. I'll venture to predict that today was the start of the last leg down in the gold bear market, and that it will not bottom until around $700. Then it will trade sideways until it gets absolutely boring.

    Andy

        1. Andy,

          Thank you for nice logarithmic chart attached. You inspired me to answer you in details.
          I, from my side, kindly offer you my linear chart tailored specially for you at the following link https://drive.google.com/file/d/0BzWkCvENvgN0QnNmbXVIeHpxWjQ/view?usp=sharing
          According to that chart for the same period Gold had 3 support lines last of which had been irrevocably broken in 2012 (grey line). Since then market is falling for almost 50% now not from 2014.
          And from the same time it is more important to track upper trendlines/resistances (falling dashed lines) as we are in bear market to watch for break up and trend reversal. And price did the break up in January this year above $1162 (dashed green line violated). So here is now more impulse to upside than to downside. And again I am not BIASED I am reading signals for you.
          The Wedge support at $1120 is located just below falling green dashed trendline at $1143. Those two levels are important now to watch current retracement.
          Hope I added to your view like you did to mine.

          Lucky trades, Aibek

          1. Aibek,

            Battle of the chartists.

            Although I've never really made any money trading the market for the last 45 years I do follow stocks and the like via charts, more for the fun of it than anything else. My experience of bull and bear moves is three waves up and three waves down. Over and over. But not necessarily the same going down as going up.

            I've followed gold for a long time. Made a bundle in the 70's on gold stocks. Then hard times followed for many years thereafter.

            Bull and bear markets. Bull markets for obvious reasons last longer than bears.

            http://www.booktrakker.com/Economy/GoldBearMarket.jpg

            So the first wave up ended in 2006, following by the second in 2008 and the third and final leg up ending in 2011. Looking at the downside I see the first wave breaking the triangle in early 2013, followowed by the second in the form of a long downtrending consolidation up to now, and the third the capitulation phase to ~$700, give or take. Then I see it trading for a long time plus or minus $200. Years. Until everyone forgets about gold. Then the new bull market starts. The real question is which gold miners can make money at $800 gold?

            The dollar meanwhile is in a multiyear bull market that will carry it higher than anyone can imagine as deflation takes hold. Dollar goes up, then consolidates the move, then goes up again, consolidates again, etc. At every new peak some very well-known forecaster says that's it, its going down for awhile, then they get egg on their face when it doesn't happen.

            EWI published a top in the dollar in December, something along the lines of this chart:

            http://elliottwavepredictions.com/wp-content/uploads/2015/01/US-DX-weekly-1-5-15.png

            Blew right through their prediction.

            Its fun to watch the experts get slammed. All those resources yet they can't seem to get it right.

            Andy

    2. Andy,

      Thank you for interesting discussion.
      Regarding DXY I published in previous comments my view and it's quite bullish targeting triple digits.
      https://drive.google.com/file/d/0BzWkCvENvgN0a0U1Q1lSdUdSRm8/view?usp=sharing
      And yes it is a good question what will be with producers at $800 when their total cash cost on average is between $1000-1200.
      They will survive, not all. but survive as costs rose with the price of Gold (there was special study of that greedy catch-up games from suppliers) but now in deflation stage mining industry suppliers will think about lower prices as well, not to damage their own biz. All is linked there.
      Also you should remember those days when Gold touched $250 area at the start of this century and miners were complaining about cost-edge price....and most of them still alive as new bull market started.
      Again nice to meet you Andy Gutterman!
      Kind regards,
      Aibek

  2. Dear Aibek Burabayev,

    What happened in Gold, just after very next day of your posting ?

    I don't want to blame you in a any manner because i know very well that nobody is infallible, however, as far as very short span trades are concerned, you may tell to buy or cover Gold, but since long, when both medium and long term movements are spoiled why and how can you predict bull run?

    From September 2011 i again and again warn about sustainability of Gold, and still i remain with my that view, because trend studies are still indicates chances to find even $ 1070 and $ 800 marks.

    1. Dear Rasesh,
      Nice to read you again. Haven't heard from you for some time, thank you for coming back with your distinct view.
      As I often repeat, traders shouldn't be biased as its world of emotions not trading. I do recommendations based on chart signals not predictions, I read not foretell. You can see my longer term view for Gold at http://www.ino.com/blog/2015/01/gold-update-total-recast/ where I said buy $1330 break-up only, which hasn't happened yet. So longer term no position yet as we are in consolidation between $1131-1330. And when monthly chart is in consolidation then daily chart can be fragile yet effective especially these days when gold's volatility is almost double compared to last year levels.
      Regarding today move - we can witness that not all the time the patterns work. For good risk-management one should put recommended stops.
      In short keep with the trend.
      To cover all time frames I post both long term and short term analysis for different type of traders.
      Your bearish view will be valid once we go below $1131.
      Best regards, Aibek

      1. Dear Aibek Burabayev,

        Thanks for detailed reply, in fact i love both of your attitude as well approach.

        I agree with you about present short term mixed trend with abrupt changes, and it is batter to prefer just positional Trader's oriented view, however, probability of very very fast single side movement can not be ruled out, and must be taken as a main risk factor for present juncture, so all trades must be followed with very strict Stops.

        For near term view, movement and high-low From Dt. 18th to 20th's will play a significant role.

        With Regards,
        Rasesh

  3. Aibek has misread his own gold chart. (1) He implies the existence of the upper band of a trend-line based on one point which now according to his interpretation has broken down after gold fell below the lower trend-line at US$1,212 (2) the trend-line that has several reference points is actually flatter (3) support for gold is much deeper at US$1,180-1,200 where the base of the lower and flatter trend-line actually lies.

    We are certainly in a major reversal pattern (to the upside) that is still building for a major break to the upside.

    1. Dear Richard,
      I appreciate your sharing with us your technical view for Gold.
      In my last two posts I focused readers attention to Inverse Head and shoulders pattern and Symmetrical triangle pattern on daily charts. Neckline and Upper side both are in one red line were main trigger for the short term analysis. Now, after this support has been broken the model is negated with tight stop loss. Later on, I would give you fresh view as we need to see further price development.
      Regarding Possible uptrend (I am stressing word "Possible") - it was parallel projection of lower side with first high as a reference point for possible target of patterns given for possible trend layout.
      And major reversal pattern is certainly void now after neckline is broken.
      Broader picture still intact posted in http://www.ino.com/blog/2015/01/gold-update-total-recast/
      Best regards,
      Aibek

  4. The US dollar is readi for a short term pull back. Consequently gold is a good buy, but sooner or later silver will follow. Buy 1,000 Newmont NEM and 10,000 Hecla HL. When they go up 10% do it again. Then after every 10% higher repet the transaction again.

    1. Dear Joseph,
      Thank you for your comments.
      I watch DXY closely and think that it is not in strict correlation with the Gold these days: DXY is flat more like Silver but Gold is not.
      Gold/Silver ratio as I mentioned is very powerful instrument to watch as it grew already 3 ozs from 71 up to 74 which made Silver suffer more than Gold more than double today.
      Best regards, Aibek

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