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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!
Jason Sen
Technical Analyst & Trader
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The content of this article is the personal opinion of the author and not InterTrader Direct. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

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