Zak Mir on Precious Metals

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3 mins. to read

A trader should always concede that it is not necessarily predicting the direction of the market which counts as much as the timing. Indeed it is this, certainly where leverage is concerned, which makes the difference between a winning and losing trader.

The recent moves in precious metals have underlined this concept in the sense that while there were indications ahead of time that Gold, Silver and Platinum were likely to be dragged higher at the start of 2014, in the end the pattern here for the bulls has been disappointing. Killer question now then – was it a false dawn or is this a natural pull back before the next leg up?

Taking Gold first, and it can be seen that the metal really has come off the boil in recent sessions. The decline from $1,390 has been savage. The March peak to date at $1,392 has merely been an overshoot of the former September peak at $1,375. The strategy to have followed (not one which was rocket science), would have been to have gone with the rally of earlier this month, but then taken profits on any loss of the $1,375 level. Such a breakdown which occurred with the March 17th end of day close at $1,366 was in fact not only a cue to cut longs, but also to go short for aggressive traders.

The subsequent loss of the initial $1,352 March resistance just a couple of days later with the $1,328 end of day close was the real cue to get short. Since then, we have really seen the technical house of cards collapse painfully for the bulls, especially given the start of this week witnessing the loss of initial March support. Such a quick retreat suggests that rather than any new paradigm being in place here, it is more of the same as far as the 3 years plus retreat from $1,900 is concerned.  While the strengthening of the U.S. Dollar on rising interest rate fears and the Putin walkover in Crimea are understandable factors to explain the position of this market, it is difficult not to be disappointed when faced with the umpteenth intermediate rebound within an overall extended bear run retreat.

The only real hope now is that the current weakness ends with a higher low versus January – above $1,250 and perhaps towards the floor of a rising trend channel from November at $1,270. Perhaps the best case scenario is that the area of the 200 day moving average at $1,296 will kick in as support. If this is the case, and perhaps only if this pans out, one would keep the dream alive in terms of this market being able to rehabilitate itself on a sustained basis.

Moving on to Silver, and what can be seen here on the daily chart is exactly what we are hoping will not play out for Gold. This takes the form of a February / March bull trap through the 200 day moving average currently at $20.02. The agony is maximised by the loss of the former $20.80 January resistance, below which this market risks a full retracement back towards the December floor at $18.69. The real upset here is that the recovery to start this year was merely a shadow of that seen for the yellow metal. The nightmare scenario for the bulls is that a break of the red June uptrend line at $1,910 leads to a breakdown to the floor of a 2013 price channel sub $15.

Finally, we have the technical position of Platinum. Here it can be seen how this market essentially shadowed Gold in terms of the bull trap and then the retreat from above the September $1,483 high. What bulls of this market really do not want to see is a break of the 200 day moving average – now at $1,427 and which could imply that we have a full retest of 2013 support towards $1,300 on tap on a 2-3 month timeframe. Essentially, as in the case of Gold and Silver, we require something very specially and surprising to get the recovery argument back in business for Platinum.

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