Gold & Silver: Hard Ground or Quicksand?

I know that most of the readers don’t like when I post bearish outlooks for the top metals as even if there are dozens of downloads, still nobody pushes the “like” button. It could be a fascinating research subject for behavioral finance or at least an excellent contrarian indicator.

Frankly speaking, I keep an unbiased stance and share my view of the structures that develop in the market. I just read signals that the market sends us all the time. From the start of the year, there are totally bearish outlooks were posted as we had strong signs in the charts and we can see that they proved to be right and one could make good money.

In this post I would like to address the question that arises these days, is this recent bounce a reversal or just another correction?

Let’s start with gold.

Gold Weekly Chart: Market Eyes $1122 To Complete The Structure

Chart courtesy of tradingview.com

Before we start I recommend that you check out this earlier gold chart to see the price and triggers’ position before the drop and signals, which I outlined in that post to refresh your memory as more than six months passed.

As I mentioned then, the trading range implied taking the short position at the top and the buyback or a long position at the bottom of the range with a tight stop. The current move down that started this January looks just perfect for trading compared to the previous one, which had begun in July 2016, where the pink zigzag undertakes. This time there were only a few small counter-trend spikes, which could hardly bother short sellers.

We can see how the price made short stops at all the crucial supports: $1237 (December 2017 low) and $1205 (July 2017 low). But the last stop and further bounce from the $1160 had no visible supports in the past, and I think it was a profit booking ahead of a weekend.

Those who are short of course are in a dilemma now as the price has dropped so much already and they would hesitate if they need to book profit now or wait for another drop. The simple math should help here; if you stay short, then you should quit above $1218 losing more than $32 per troy ounce from the earlier gain. On the other side of the scale is the potential for an additional profit of almost $64 per troy ounce if the price would retest the $1122. So the risk/reward ratio still favors keeping short at the 1:2.

Some investors are thinking of taking long positions these days. I wouldn’t recommend that you try to “catch the falling piano” as traders like to say about collapsing markets. Wait for the confirmation even if you will miss the very first move up as it will retrace in some kind of correction before continuing to the upside. Just bear in mind that the $1122 could be quicksand ahead of $1000 or even $900.

Silver Weekly: Flash-Crash Support Scared Sellers

Chart courtesy of tradingview.com

It is the buying in the silver market that scared sellers of gold in spite of the absence of the visible support there. We should clarify the reason behind that purchase in the silver market.

There is a simple answer, the silver price just reached the trough pinned by the notorious Flash-Crash last July at the $14.39, and investors rushed to book the profit there to avoid being squeezed out by the repeat of the $1 spike that followed the Flash-Crash.

Here is the simple math behind this wise behavior as even if the market would retest the major low at the $13.65 there is almost $1 per troy ounce to win, but there is a risk to lose back the same amount, and that is not as healthy as the risk/reward ratio is at 1:1.

I wouldn’t recommend a long position as yet to see more clear signals from the market first as I explained it for the gold market.

Both metals have a different structure of the junction that links the drops as silver shaped the Triangle instead of a zigzag in the gold chart. That’s why we should closely watch which metal will touch the bottom earlier. Please be careful with longs as the alternative scenario that gold would hit $1000, and silver $12.30 could materialize.

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.