Outlook for 2018: gold and silver

Jason Sen

Despite almost 10 years of a very strong bull market for US stocks there is no sign of this run ending. Much as I believe the market is overvalued I would never dream of betting against the trend. I will only watch for patterns through 2018 that could signal the end of the bull run before I will even think about shorting.

My best suggestion for 2018 is taking long positions in gold and silver. This is not only because they are good hedges against a sharp correction in stock markets.

In the gold weekly chart below you can see the price has traded mostly sideways over the past two years, once we made a low for the correction at 1045 in late-2015. This year we have been unable to beat the recovery high set 18 months ago in mid-2016 at 1375.

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The weekly moving averages confirm the sideways trend. I am encouraged, however, that the price is holding above the 200-week (red) and 100-week (blue) moving averages as we near the end of the year. More importantly, we are holding above the five-year downward-sloping trendline. At this stage this is at 1215, just below the 200-day moving average at 1232.

Bulls need to see the price close the year above 1270 to start 2018 on a more positive tone. A move back above 1280/85 in January would be a good start to the year. If we can then beat the October/November highs of 1297/1306 we should be on the way to the 2017 high at 1357.

We then meet the most important resistance of the year at 1374/79. This is the 2016 high, which was held by the longer-term 38.2% Fibonacci resistance. A break above the 2014 high at 1387/88 should be seen as a strong longer-term buy signal.

The silver monthly chart below shows the price stabilising over the past two years. We have hovered above the red 200-month moving average support around the $16 area.

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You can also see the important 13-year trendline dating back to early 2004. This held perfectly when tested more recently at the end of 2015 and in mid-2017. I believe we are building a base and will eventually climb back towards the 2017 high at 20.64, then the 2016 high at 21.10.

Note how the blue 100-month moving average worked perfectly as resistance when tested in 2016. Obviously a break above this average in 2018 would be an additional buy signal. This would nicely clear the 500-week moving average (now around $21) to encourage bulls.

The silver weekly chart below gives further cause for optimism as long as we continue to hold the five-year downward-sloping trendline support, as we have done in recent weeks. A push higher through the October/November high at 17.37/17.46 in 2018 will also clear the 100 and 200-week moving averages for further bullish confirmation.

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Jason Sen

Technical Analyst & Trader

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