The recent collapse of the top precious metals shouldn't be a surprise if you read my previous Gold & Silver update in November, where I called for the upcoming “storm” after the “calm.” In this post, I’ll share with you the updated charts of both metals.
I changed the order of the charts, and this time I would start with silver as it reached the first decision point ahead of gold.
Chart 1. Silver Daily: First Target Reached
Chart courtesy of tradingview.com
Silver has a strong bearish structure as the red long-term trendline keeps the pressure on silver. The second leg of consolidation within the black parallel channel lacked power as the price couldn’t reach even the top of the first leg established in October at the $17.47 per oz. It stalled at the $17.39 per oz. and then collapsed for more than a half of a dollar to check the consolidation support.
After a small pause, bears could seal the deal to break below support, and this naturally triggered an immediate reaction from the market as the price was smashed by ongoing selling pressure. Last Thursday, silver hit the first support area around the $15.60 per oz. Highlighted in the previous chart losing almost $2 from the top established in November.
If you visually compare the drop before the consolidation and the recent collapse, you can see that these moves are almost equal. And therefore the small bounce last Friday was quite natural as established markets pause after a good move. Another factor pointing at the coming correction is the depth of the loss. Silver has lost more than 10% from the top as gold has scored only -4% and the white metal could wait for the yellow one to catch up in this area.
I highlighted the Flash Crash low on the chart at the $14.39 per oz. as the next level of support, the last time strong demand emerged at this level. The full retracement will be reached at $13.65 per oz. and these two supports could offer a strong buying area (blue rectangle), which could reverse the price to the upside.
The invalidation point was moved lower to the top of consolidation at $17.39 per oz. Amazingly, it coincides with the downtrend’s resistance. Magic geometry appears on the market again and again.
Chart 2. Gold Daily: Double Support Was Cracked
Chart courtesy of tradingview.com
The second leg of the consolidation (black parallel channel) in gold was also weaker than the first leg like on the silver market. The top of the channel was untouched as the price of gold couldn’t overcome the psychological level at the $1300 per oz. The price action within the black channel was similar to silver’s behavior as price, also checked the support of the consolidation first and only then it finally cracked the double support (black and blue) below the $1265 per oz.
Gold bears didn’t hurry as another $43 still separate them from the next level of support at the $1205 per oz. Friday’s candle has a small body of just $2 amid the $10 overall height. It means that the market is going to take a pause. This could either be the pullback to the broken support or a small consolidation before another attack to the south.
The added support level at the $1122 per oz. Together with the bottom price at the $1046 per oz. (blue rectangle) could catch the drop and push the price to the upside.
The nearest resistance was set lower now to the $1300 per oz.
Last December both metals enjoyed the Santa Claus Rally and this year there is no clue of that as yet. In December of 2015, there was no rally, but the market had built the reversal area then. Let’s see if this year is different.
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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.
My chart for ETF silver trust indicates lower still.....14.31