Last week, I mentioned that I had not yet decided on my re-entry strategy for gold and silver. I remain in neutral as gold, silver, and the dollar index churn in various holding patterns (using GLD and SLV as proxies for gold and silver respectively). GLD is right where it was two months ago. SLV is where it was a month ago when I flagged the parabolic upward movement in the silver ETF. I suspect that the dollar’s resilience since bottoming at critical support in November is contributing to the congestion (I would love to buy gold and silver denominated in euros). Moreover, interest rates are on the rise in the U.S., adding one more potential headwind to further appreciation in the precious metals.
GLD and SLV are now approaching trend lines that have served them well since August. Their behavior at these trendlines will provide the first tentative indicators on the potential for confirmation/invalidation of the double-top patterns. My friend TraderMike laid out the case for potential double-tops last week. The charts below are a supplement to his case. (Note well, I am not interested in shorting gold or silver; my main interest is in determining when and where I might re-establish positions. The long-term bullish fundamentals for gold and silver have not yet changed).
The first test of support was a great short-term entry for GLD. Another successful test of the 50-day moving average (DMA) should provide a firm launching pad to invalidate (eventually) the double-top pattern. Otherwise, support at $128 will quickly come into play.
Silver’s uptrend has been far more impressive than gold’s. SLV has been guided upward by its 20DMA. SLV can break this trend and still find strong support at the 50DMA before a confirmation of its double-top formation comes into view.
Finally, the dollar index has bounced between its 50 and 200DMAs for a month now. I suspect resolution of its next move will catalyze the next moves for gold and silver.
*All charts created using TeleChart:
At this point, I am inclined to guess that the dollar will eventually make a bullish move above its 200DMA. One-by-one, currencies in the index seem to be weakening versus the dollar. The euro has been stumbling since peaking in early November. The dollar is reasserting itself versus the yen as it has retrieved half its gains from the Bank of Japan’s currency intervention in mid-September. In the past three days, the British pound has plunged after failing to break through resistance at its 50DMA versus the U.S. dollar. The Bank of England still seems in no hurry to raise rates according to its last Inflation Report, and the currency market may soon get tired of waiting. The pound is now testing support at 3-month lows (the pound is also at all-time lows versus the Swiss franc and the Australian dollar). (Charts not shown).
Be careful out there!
Full disclosure: short EUR/USD, long GBP/USD, short GBP/AUD, long GBP/CHF