Gold and silver oversold after two-week correction
On 5 July I wrote that gold and silver were likely to be forming short-term tops. Gold did however travel a little higher before topping and reached past the high at the time of $1357/58 to top at $1374.91. It was only then that we saw the expected consolidation but prices have only sold off to a correction low at £1310.56, hit last week.
Time for an update and I think we need to get our buying hat on again. We are oversold now after the two-week correction, and this is the first signal for me to look for a buying opportunity, but more importantly I see strong support at $1315/12. As I write this is holding and in fact was initially tested last week making a low at £1310.56. I think there is good enough reason to be bottom-fishing here and I have started to buy a little.
If a break below $1310 is seen I am hoping the price will target very strong support at $1300/1295. If we reach this level it should be a truly excellent buying opportunity and I think a very good chance of a low for the correction. I would certainly be averaging into more longs on the approach to this important support.
As long as this area holds it signals that a healthy solid bull trend remains intact, one which requires regular bouts of profit-taking. I would only be concerned if we started closing below $1288. This would sound warning bells and risks a slide as far as $1270.
Silver was a little kinder to me. I wrote on July 5:
‘The rally is likely to stall over the summer months in my opinion. I think we have just gone a bit too far too fast and I suspect many of the silver longs are in for short-term speculation, as opposed to longer-term investment. I think therefore there’s a good chance these weaker positions need to be shaken out before the next major leg higher in silver.’
As it turned out the spike higher on the night of Sunday 3 July marked the high for the year so far.
‘It’s interesting how we rocketed from $19.66 on the open on Sunday night to the $21.10 high in about four hours. That’s a 10% increase!
‘Not a huge surprise that, once the panic buyer had bought all the shorts back, the market stabilised and is starting to head lower. In fact this morning (Tuesday) as I write, I have seen silver trade down to $19.52, which puts us down on the week after last week’s close at $19.73. It also means the break above the important 200-week moving average at around $20.10/15 has not been sustained.
‘I’m looking for a short-term bear or sideways trend to develop over the summer.’
Silver has traded sideways since, correcting a little and only as far as $19.20. In fact this price was seen on the Friday of that first week in July and then we traded back up to $20.67 and back down to $19.20 at the start of this week.
I finished up by writing about silver: ‘… strong support at $19.40/35 is then the main focus. I do expect bulls to put up a very strong defence here and I would be surprised if we do not bounce at least a couple of times off this level as bulls try to regain control. I certainly would not rule out sideways action through the summer, with prices managing to hold $19.40/35.’
I think silver holding that £19.20 low is significant and that three weeks of sideways movement may have been enough to shake out weak longs. The short-term players have probably moved on to something more exciting but the longer-term bulls are sensing their chance to take control again.
Although the longer-term weekly chart above does not give any good reasons to be finding much support in the mid-to-low-$19 area, take a look at the triangle pattern on the four-hour chart.
Note how we have held just above the short-term 38.6% Fibonacci support at $19.10/05 as we head towards oversold conditions. Looks like we are poised for a breakout to the topside!
Technical Analyst & Trader
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