It’s important to remember that gold and silver trade against the price of the U.S. dollar, the dollar is the counter-balance to gold and silver. When the $U.S. strengthens we usually see pressure on gold and silver prices and when the $U.S. weakens, gold and silver usually rally.
While the long-term fundamentals suggest gold and silver are good long term investments, it can be difficult to know when to actually trade them as there are always pullbacks in the markets with nothing moving up in a straight line. Bernie Madoff profited from unsuspecting investor’s fears by making small regular profits monthly minimal volatility. In reality, if you want to profit in the market, you must be aware of the risk. This is where technical analysis becomes important in that it can potentially lower your risk significantly by improving your timing on entries and exit points for example. The following is our analysis of gold, silver and the $U.S. Dollar prices which are intrinsically linked.
Gold at $1323.40 per ounce faces heavy resistance at the $1350-$1375 range and support can be found at $1300. Expect some turbulence around these prices. Our indicators told us that a good trading entry point for the spot price signaled on 1 February and the price has rallied 18.74%. The mining ETF we like ie. GDX triggered on 3 February this year and is up 99.31% while the junior miners ETF GDXJ triggered on the same day and has rallied 136%. Back to the physical spot price and $1300 has become a psychologically important marker. $1300 may become the new resistance marker if that price is breached. Look for inevitable pullbacks in the price as an opportunity to add to positions rather than chasing the tail and buying when overbought. Retracements towards the 50-day moving average is an important institutional indicator for new entries as the price finds a new point of entry. Importantly volume currently remains strong in the gold market.
Silver at $19.69 finally breached $18.50 with institutional funds joining the silver rally as we can see from the huge volume figures. There is solid resistance at $20.50 and the key support level is to be found at $13.90. We are extremely bullish on silver. We have been long since 3 February this year and the price has rallied 35%. The silver mining ETF SIL has rallied 143% since the beginning of February.
The $U.S. index at $97.36 faces massive resistance at $100.16 with the long- term support level at $93.50. Thus the key trading range is between $93.50-$100.16. A breakout above $100.16 would be negative for gold and a breakout below $93.50 would be very positive for gold.