Where do we stand in the precious metals market? With these wild rides of late, it is key to remain very focused on the charts. It is a simple way to neutralize emotions which are the result of looking at the large candlesticks up and down in the price charts.
The 4-year weekly gold chart (first chart below) reveals some interesting patterns. First, there is a huge support zone just below the $1,200 price level. We have reiterated the importance of that price point in our recent writings. The fact that gold is back up to $1,200 is of huge importance. The weekly closes in the coming weeks should be monitored closely by precious metals investors.
Next, the gold price has been moving above the descending trend line which started at the end of 2012 since March of this year. Admittedly, the trend is still down, but it’s not going down as fast as last year.
Third, the price of gold is about to touch a third time the short term downtrend line (the one which started in July of this year). Now here it becomes interesting and important. If gold manages to break above that trendline, it has a confirmed trend change. Obviously there are much more hurdles to overcome before being confident that the secular bull market starts dominating again; a first challenge will be the trendline that started in March of this year. But there is a real possibility that this scenario will play out. Stay focused on the chart pattern and the aforementioned price levels.
The silver price chart is easier to read. Unfortunately, it is in worse shape currently, as a major support line has been breached in September of this year. If, and that is a big IF, the silver price would climb back to the $18 level and stay above it, there would be a non-confirmed breakdown. There is not much on the chart that suggests this will happen, but there is some news out of the COMEX market that could make for a bullish outlook, see below. In any case, silver has more to overcome than gold before becoming too enthusiastic.
The miners are somewhere in between gold and silver. The chart reveals a breakdown in October but, simultaneously, there is a strong move going on which could negate the breakdown. It is more outspoken than the one on the silver chart. Several weekly closes above 185 points, which is 6% above today’s closing price, are required to turn hope into faith. The next challenge would be to break out of the trading range between 185 and 275, a large 18-month chart pattern.
At this point, there is no chart pattern that should make the bulls too enthusiastic. The dominant trend is still down. However, the COMEX futures positions in gold and silver could spell a trend change. We prefer to let the charts speak, so our recommendation is to only become bullish once there is sufficient evidence on the chart(s). Nevertheless, this is what silver analyst Ted Butler wrote in his latest market update, specifically related to silver:
I can peg JPMorgans formerly manipulative short position in COMEX silver as now being no more than 8000 contracts and quite probably even lower. Never, since acquiring the massive short position of Bear Stearns in 2008, has JPMorgans silver short position been lower. Considering how much physical metal I believe JPM has accumulated (SLV, Silver Eagles, etc.), JPMorgan has never been better positioned for a real upside move in silver.
But more than ever, the current setup brings an old theme of mine directly into the crosshairs. To the point of redundancy, Ive written over the years that the speed and extent of any silver rally would be determined by whether JPMorgan and the other 7 big concentrated shorts added to short positions for the purpose of capping the price of silver. The events of the past two weeks bring that premise into sharper focus than ever before. With an assured reduction of potential raptor long liquidation, if JPMorgan and the other big concentrated shorts dont add significant new short positions on the next silver rally (possibly begun yesterday) silver will fly like a rocket to the moon.
As silver has been the laggard in the last months, it would be a great development if the grey metal could catchup and lead gold and the miners higher. That could truly be a game changer. Until that point, patience should be stronger than the ego of investors.