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Jason Sen

Silver and gold re-test important longer-term support

Gold and silver have been quite a strong focus for my weekly articles in recent months. The metals have collapsed dramatically over the past three weeks. Silver has fallen by 14% in this very short period, from a peak of $16.36 down to a low of $14 yesterday.
We did however manage yesterday to hold successfully above silver’s August low at $13.93. We have in fact seen quite a decent bounce from yesterday’s low, and in severely oversold conditions we can speculate about the potential for a very bullish double bottom pattern here.

You can see in the chart above 15 consecutive red candles over the past three weeks. This must be almost unprecedented. We do have a short-term bullish candle on the four-hour chart, but will need to see a break above $14.35 to give bulls a chance of a short-term recovery.
The monthly chart is far more interesting.

No doubt you have seen this chart if you are a regular reader of my weekly articles. The five-year bear market has seen the price collapse back to the 200-month moving average (the red line) around the $14 area, and this has held perfectly for the last four months. There is a strong chance we are building a solid base here and the importance of the 200-month moving average support must not be underestimated. We have been nowhere near this moving average since 2003.
In fact let’s take a closer look at that 2002/2003 period on the monthly chart.

You can see that in 2002 the 100- and 200-month moving averages worked perfectly as resistance and we held below there until late 2003. Once we burst through at the end of 2003 we did see a re-test in 2004, but held above these two moving averages. From then on the long-term rally just rocketed up to the $49 area in 2011. We did revisit the 100-month moving average in 2008 during the financial crisis, but this served as a perfect platform for a two-and-a-half-year rally that took us from $8.42 up to $49.51 – a near 500% gain.
If we are forming a strong base, longer-term targets for the start of the bull market are $15.90 then $17. Above here we can target $18.00/18.05 and $18.90/19.00.
Gold has been moving lower in a descending channel for the last two years as you can see in the monthly chart below.

We are re-testing the lower trendline of this two-year channel this week which is just below the 50% Fibonacci support at $1087. This held quite well earlier in the year, but the trendline support is not quite as clear-cut as the support we see in silver. However, when you consider gold has of course also fallen as dramatically as silver over the past three weeks, there must surely be a strong chance of at least a short-term recovery from here.
Yesterday’s candle gave a hint of recovery with a new low but a higher close. This mildly positive candle pattern has been confirmed with a good move higher already this morning to $1078. If we can finish the week above $1085/1086, it would give more hope of at least a short-term recovery and we could target $1094/1095 into next week.
Jason Sen
Technical Analyst & Trader
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The content of this article is the personal opinion of the author and not 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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