Zak Mir on Precious Metals In The Brace Position: Silver, Gold and Palladium

One of the reasons I am glad to be back in the UK with the family, after several years in Spain, is that from now on the need to fly back and forth will be much less. This is just as well given my dislike of flying. Hearing the flight safety instructions on a frequent basis and the dreaded “Brace, Brace!” is not great for a person of my disposition.

Unfortunately, it would appear to be the case that fans of precious metals may have to brace themselves for a rocky ride over the early summer. This is despite the way we have been promised lower interest rates and QE in the Eurozone by ECB President Mario Draghi next month. At least in theory, there are several new fundamental developments which may be supportive of the aforementioned asset class – I am reminded of my Monthly Pick in May’s Spreadbet Magazine: silver as a long play.

It may also be worth looking at the present charting position of silver, as well as gold and palladium. This is to try to determine whether we are looking at a situation where the bulls are likely to be wrong footed over the near term. Such a possibility still exists, even if later in the year geopolitical aspects, or a delay in tapering / interest rate rises, means that metals prices and miners have been wrongly slammed.

Silver…

On the daily chart of silver, it is probably fair to say that this a market which has been and continues to give the impression of bumping along the bottom. This is because we have a red line of support from June last year, holding at the $18.80 level, with only an end of day (or preferably end of week) close back below this feature suggesting a new leg down may be sustained.

While we do have an uptrend line in the RSI window holding this market near the 30 / 100 oversold level, below $18.80 would open the risk of a breakdown within a falling trend channel from June last year, as low as $16. Such a breakdown over the summer would surely cause capitulation for bulls of this market. But of course, this has not happened yet and it may be wise to assume that we really are bumping along the bottom unless there is emphatic price action to prove otherwise.

Gold…

Moving along to gold and after such an extended stay for the metal either side of $1,300 in recent weeks, the relatively sudden decline towards $1,250 – and a line of support from June last year – may have caught traders on the hop. The question now is whether the decline so far is merely the first stage of a drop to retest the sub $1,200 support. Or it could be the final flush out before a sustained recovery is seen.

Perhaps not surprisingly, I prefer to dodge the issue to some extent. Technically, traders could wait on at least an end of day close back above the April support at $1,268 before assuming a lasting bear trap recovery could be forthcoming, or an end of day close back below $1,250 to deliver a retest of the worst levels for the metal below $1,200. The way that this market has suffered a 50 day / 200 day moving average dead cross sell signal this week suggests that if a recovery is to occur any time soon, the longs have got their work cut out in the near term.

Palladium…

Finally, it may be worth attempting to cheer ourselves up by looking at the present daily chart position of palladium. Here on the daily chart we effectively have the opposite scenario to that being offered at gold. What can be seen here is the aftermath of a golden cross buy signal between the 50 day / 200 day moving averages at the beginning of March. Since then there has been a multi-tested RSI support line in force backing the recovery argument. The likelihood now is that at least while there is no end of day close back below the 20 day moving average at $819 the upside here could still be towards a one year price channel top at $900 over the next 6-8 weeks.

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