Zak Mir midweek update on Gold & Silver

I would suggest that many readers are currently scratching their heads as to why the precious metals (gold and silver) have been on the back foot since the summer of 2011, particularly in contrast to the global equity indices that have rallied so sharply. Both of these issues are related, but it would appear that the relationship you might have expected is not in place. Conventional wisdom has it that stocks are soaring off the back of QE and zero / negative deposit rates but, it is more difficult to work out why gold and silver are not playing ball for the bulls. Particularly given that the current dose of US & Japanese QE is far more aggressive than most could have envisaged even a year ago.

When you add in how much more money printing may be needed in the West and of course especially here in the UK just to get their economies off the flat line, the outlook for the precious metals brigade has never looked so good. That said, it would help if the bull run in the indices cooled off a little, just to give these most ancient of asset classes a look in…

Starting with Silver first and it can be seen from the weekly chart that you would probably wonder what I have been bleating about in the first paragraph regarding the relative unpopularity of precious metals of late. Here it can be seen that there has been a rising trend channel in place since 2008, with the added plus point being that the floor of the channel at $28 is clearly well above the black 200 week moving average at $26.90. This is significant and not seen very often. On this basis – if you were only acting upon the weekly chart of this market you would be ready to go in on the long side with a stop loss below the 200 week line. While there may not be an explosion expected on the upside, it can be said that a retest of the initial $32 plus resistance of 2013 makes for a relatively modest target for the end of Q2.

But, while Silver looks quite special as a bull candidate on its weekly chart, the daily chart timeframe paints a more difficult near term picture. I say this as since the breakdown back below the initial January $29.23 intraday low last month, this particular level has now asserted itself as new resistance for the metal. My minimum requirement as far as being bullish again on the basis of the daily chart only  would be a weekly close back above the former January floor – not apparently an easy task any time soon…

Moving onto the weekly chart of Gold and the question can be asked: crisis what crisis? This is at least the case as far as the longer term view is concerned where we have a market which is trading over $150 above its 200 week moving average. Given that this is the case, one would actually suggest that the reason that Gold has been stalling is because it still needs to unwind the very overstretched position reached a couple of years ago. Indeed, it may still take the best part of a year for the 200 day moving average to catch up with the price action – and then allow a new leg to the upside. But it really is the case here that we would like to see $1,655 plus and the 50 week moving average broken before anticipating that this market’s consolidation had run its course.

Moving onto the daily chart of Gold and it is perhaps the case that the real misery as far as precious metals are concerned has been here in recent months. That said, February / March support has come in higher than H1 2012, implying that this market is obeying the overall uptrend and the upswing implied by the weekly chart described above. As far as what the minimum buy trigger required here is concerned, we would really wish to see the old January low of $1,626 recovered, an echo of the $29.23 low being sought for Silver.