Monday, July 22, 2013

Gold and Silver Rally to Continue? Projections If So

Click on Chart to Enlarge

This is a chart of silver prices going back a few years.  I had recently mentioned in video updates that the smart money commercial traders were buying heavily into this market compared to historical buying/selling patterns.  They have not turned net long yet, but these producer dominated markets rarely get even close to net long.  So the current near net long exposure we are seeing is very extreme in its own right.

Based on seasonal patterns, the common time for gold and silver to form a bottom is the June/July time frame which coincident with the recent swing low in prices.  The leg down since last fall has been tremendous in both % decline and time duration compared to historical precedents.  This favors at least a relief rally in the metals if not a bear market bottom.

The chart above shows some historical comparison projections of the expected price and time of this rally if it is to continue to unfold into a typical bear market rally or even a first leg up in a new bull market.  In either case, we can expect some significant more buying to come in to even reach a minimum expectation.  So this would favor being on the lookout for short term buying patterns or signals to continue to follow this rebound up for several weeks.

Click on Chart to Enlarge

This is a weekly chart of gold showing an extremely oversold MACD.  Obviously with such an oversold environment a multi-month rally should probably be expected.  However, notice that there is no divergence pattern indicating the typical bottoming signal at this time.  At most major market bottoms, we see price make a lower low after a rebound from extreme oversold conditions.  But the technical indicator (MACD, RSI, momentum, etc.) will not make a lower low.  That is our usual tip-off that a bottoming set-up is present.

So given the overall context here, I would be looking for higher prices over the coming weeks, but with the tentative expectation that the rally may lead to another shorting opportunity and move to at least slight lower lows before a possible completed bear market.

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