Gold and silver unable to sustain gains
When gold managed a nice bounce off important support around the 1085/1080 level earlier this year, I excitedly predicted a strong rally and perhaps even the start of a bull trend. Despite some early encouragement this has not come to pass.
As you can see in the weekly chart below, we managed to push up to the strong resistance at the 38.2% Fibonacci resistance level at 1179, coupled with the purple 55-week moving average. The failure to close above the purple 55-day moving average saw us hover below it for two weeks before the price collapsed again.
Gold did actually manage to close two days above the 200-day moving average which gave us some cause for optimism that this could not be sustained. We spent the next two weeks spiking back above the 200-day moving average (the red line in the chart below) without managing another daily close above this resistance level.
Eventually the price of gold collapsed and has now fallen for seven days in a row. This has taken us back below the 100-day moving average and all the trendline supports that you see in the daily chart below.
It is a dire situation for bulls. We didn’t really manage any decent bounce off any of the trendline supports despite becoming very oversold in the past week. Importantly we had intersecting trendlines at the 1123/22 area and we had no trouble slicing through there on 3 November, when we dropped from 1138 down to 1114 in a single session. This acted as resistance the following day, triggering a move down as far as 1102 this week.
Strong gains in the first two weeks of October, from 1104 up to 1190, have been wiped out almost as quickly. We have re-tested the October low of 1104 and are managing a small bounce back as I write to 1108/1109, but this hardly looks like the start of a strong move higher. It looks like the best the bears can hope for is a bounce in a negative trend to unwind the oversold conditions.
If the bulls are lucky we should target 1113/1114 and could even make it as far as five-month trendline resistance at 1120/1121. Just above here we meet three-month trendline resistance at 1123/1124, so that whole low-1120 area looks like a selling opportunity at this stage.
On the downside we have the September lows at 1098. A break below here would of course be an added negative signal targeting 1093 then 1083/1082.
Of course it is a similar story for silver. This market has also been in decline since 2011 with the bear trend so far bottoming out this year at 13.93. Again good reason to believe we could have made a longer term bottom at this stage. Looking at the monthly chart below, you can see how we perfectly held the 200-month moving average (the red line). This important support was also just above a very long-term trendline going back to June 2011 at around the 13.50 area.
This was an obvious reason to predict a turnaround in silver and fortunately the price did take off as expected, eventually breaking up through the 100-day moving average and making it as far as the 61.8% Fibonacci level at 16.30. We hovered just below this resistance throughout the whole of October, managing a spike up to that level on 28 October and topping at 16.36. The spike saw us quickly retreat as you can see in the chart below.
In fact if I expand out to the weekly chart you can also see how there was a very long-term trendline going all the way back to August 2013, which silver failed to close above throughout the whole of October.
Bears clearly remain in control of this market and it looks like we have really only managed to stabilise over the last three months, rather than build a longer-term recovery. Silver has headed lower for the last six days, breaking back below the 100-day moving average.
There is one last hope for silver bulls and that lies in two-month trendline support at around 14.80/14.70. This really is the last line of defence and if this can be held there is a small chance that bulls might be able to establish more of a longer-term recovery. A break below here however could see silver extending the two-week decline to test October lows at 14.35, with September lows at 14.24, and perhaps even August lows at 13.93.
Just remember that the August low is still a very important longer-term support level, and in fact more so now, as the four-and-a-half-year trendline has risen towards the 200-month moving average at 14.00/13.90. A double bottom here would be a very strong base to propel silver higher into 2016.
Technical Analyst & Trader
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