In my previous article on the SPDR Gold Shares Trust (GLD) and the iShares Silver Trust (SLV), published a couple of weeks ago, I suggested to investors there was a short-term buying opportunity in precious metals. If you would like to read that article, you can find it here. Since then, GLD and SLV are up 1% and 4.4%, respectively. In this article, I would like to give my predictions for the metals in the short term, as well as a brief fundamental backing for my long-term investment.
SPDR Gold Shares Trust
As mentioned in my last article, GLD was able to hold the 61.8 Fibonacci Retracement level on December 20th. Since then, GLD has broken above the downward trend line (2), which has held it lower 3 times previous. GLD now has its sights set on breaking the next downward trend line (3), currently at $165.50, which should offer intermediate-term resistance. On Thursday, the high for the day was set at the 38.2 Fibonacci Retracement level around $164. I remain optimistic that GLD is able to break above trend line (3) on its next attempt, as the RSI has broken out of its own downtrend (5) and is setting a higher high. On a break of trend line (3), a move up to trend line (4) would be expected. However, if GLD is unable to close above trend line (3), a move back down to long-term trend line support (1) would be very likely. A move to long-term trend line support should be used as a buying opportunity for longer-term investors, as this should act as a strong cushion.
iShares Silver Trust
For the fourth straight day, SLV has closed higher, and finished at $30.67 on Thursday. As mentioned in my last article, SLV was able to hold the 61.8 Fibonacci Retracement level at $28.67 on December 20th. The circumstance hasn't changed significantly over the last couple weeks technically, although SLV is up 4.4% since the last article. I am still expecting a move up to the downward trend line (2). On Thursday, SLV traded above the 38.2 Fibonacci Retracement level at $30.74, but closed under this level on a weak close. I remain positive that SLV will trade up to trend line (2) before a significant move downward, as the RSI has closed above its own downward trend line (3). However, if I am incorrect and SLV reverses back down, a move to long-term trend line support (1) would be very likely. The long-term trend line support is a buying opportunity for the long-term investor.
Brief Fundamental Analysis & Conclusion
First off, every investor should allocate a portion of their long-term portfolio in precious metals for better diversification. With the country's debt ceiling quickly approaching, in all likelihood, we will once again have to raise this ceiling to meet our debt obligations. Gold has a strong positive correlation to the debt ceiling, and as we raise the debt ceiling once again, the price of gold should follow higher. I am not concerned the Federal Reserve is going anywhere until we see much stronger economic data. Until then, we will continue to see more quantitative easing and cheap money. At the end of the day, fiat money is backed in faith, and until the government gets its act together, my faith continues to diminish. Precious metals will remain an essential part on my portfolio, and any pullback will be a long-term buying opportunity.