Technical Data, Fundamentals Supporting Gold and Silver Posted by Adam King on February 08, 2013
The bullish case for gold is essentially close to unassailable at this point in markets. Though temporary dips are normal in any bull market, few major analysts or economists are willing to put forward any case against the power of precious metals in today’s market.
In the 10-year history of the gold price movement, there are three prior breakout drives followed by consolidations. Following the drive to $727 per troy ounce there was a 17-month correction. The next price move brought the price of gold to $1,132 per troy ounce following by a consolidation lasting 18 months. Finally, the price moved up to the all-time nominal high in U.S. dollars at $1,921 per troy ounce and we will be reaching the 18-month mark since that price move next week. This implies based on previous price patterns we could be looking at a period of intense price action upward in the very near future.
Gold and silver have also seen dramatic and consistent reductions in spec longs, with gold seeing large spec hedge net longs dropping from roughly 210,000 contracts to about 130,000. Though silver’s spec long reduction has been slightly more muted, it also has been off highs. As the market has been relatively flat over the period, speculative drawdowns and short spikes can be viewed as a highly optimistic sign. Though silver has not washed out as many weak hands as gold at this point, the movement is clear.
On the daily chart, the price of gold is looking to break through $1,698 per troy ounce and silver is looking to break out at $32.125 per troy ounce. Once those levels are breached, the market is prepared to see higher prices in those precious metals. Silver actually touched its resistance line four or five times over the past week and per analysis from MSN it was steadfast commercial shorting agencies that held the line each time.
Market sentiment is also moving as market participants have become frustrated with gold’s lack of response to QE4 and the fiscal cliff resolution, which have been very much muted compared to what the market would normally expect. With the poor sentiment in the gold market and fundamentals working for gold and silver, bulls with longer-term projections can easily have the upper hand and take advantage of prices in the current market.