Fundamental and technical review of gold and silver
If one looks at the fundamental issues, it would seem that the factors that pushed the gold price over the US$1 900 per fine ounce level in September 2011 are slowly being brought under control. The latest economic data from the United States has been largely positive, at least for the moment; the Euro crisis seems to be under control and the threats from Israel to attack Iran have become a little more subdued.
What we can expect to see in the medium term, therefore, is probably a softening of the gold price, perhaps to levels between $1,630 and $1,640. Nevertheless, the situation remains fragile and any renewed uncertainty in the markets could cause a sudden surge in the price.
For once the technical and fundamental indicators seem to agree. Fig. 3.22(a) depicts the gold price for the past two months. Here we can clearly see that the price is significantly down from the maximum of $1,790 we saw on the 29th February. Since then it has dropped more than $140 per ounce to the 22nd March level of $1,648.35.
The price is well below the Ichimoku Kinko Hyo cloud and so are the red Tenkan Sen and blue Kijun Sen lines, confirming that we are experiencing something of a bear run.
Over the past week the price has been moving mainly sideways and the green Chinkou Span line, which currently intersects with the price of 26 periods ago, confirms this uncertainty.
A cautious trader would wait for a clear signal, such as the price moving below the recent minimum of $1,634.05, before entering into a short trade. For a long trade, wait for a significant break above the Ichimoku cloud.
If we look at Fig. 3.22(b) we can clearly see that silver is currently trading at much lower levels than the record price it achieved at the beginning of March 2011. It is also clear that, since the end of November last year, nothing significant has happened in the silver market, in fact the price as of today, 22nd March 2012, is exactly the same as it was at the end of November 2011.
Fig. 3.22(c) takes a closer look at the short-term situation. The lack of direction in the market is even more apparent here. The same factors driving the gold price also plays a role with silver, the state of the US and European economies, the political situation in the Middle East and threats of major wars can change the picture overnight.
For now, the Greek debt crisis seems to have been laid to rest and the US economy is improving slightly. This should put some downward pressure on the silver price and in the absence of new threats to the world’s economic stability we are unlikely to see a surge in the price anytime soon.
In a non-trending market the Ichimoku Kinko Hyo does not give clear trading signals. Wait for the price to break from the current range-bound channel before venturing into any major trades.
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