Looking back at the 2011 highs in gold of 1923.70, it seems the easy money for the yellow metal was made last year on Sep 6.
If we look at the chart above you can clearly see an ABC correction that bottomed on Dec 29, 2011 at 1535.50. One can also see a classic bullish pattern configuration that in technical terms is called a down flag formation within a potential head and shoulder bottom. This is a very bullish pattern that identify any potential change taking place in the market cyclical trends, alerting us the secular underlying major long term bull market is intact and is getting ready to put into perspective and challenge the previous high made for this cycle top which took place in 2011 above $1900 per ounce.
What are these technical bullish patterns telling us after last week's price action?
On February 29, the market broke more than $100 dollars during the day session with a high of 1792.30 and a low of 1688 closing at 1711.30 down $64.70 from the previous week.
This price action took place during a live televised broadcast by Ben Bernanke, after signalling the financial markets that based on the latest economic reports regarding unemployment and inflation there was no major need or concern by the Federal Reserve Bank to put QE3 back on on the table.
The media had a blast with this information and precipitated what appears to be is a massive maneuver of central bank intervention causing the price of gold to drop more than $100 per ounce and silver close to $1.50 per ounce in one trading day. This has all the signs of another concerted effort by the paper shorts to manipulate the price of gold by causing massive panic liquidation of speculative stop loss orders precipitated by algorithmic trading triggered by the negative sentiment created by the media.
All of this was taking place simultaneously as the ECB was injecting $712.4 Billion of liquidity to the eurozone crisis, providing record low interest rate loans to member banks. This is the second infusion of liquidity or capital by the IMF and the U.S. in the history of the financial markets according to James Sinclair, one of the world's leading gold experts in an interview with King World News.
"If, in fact, what Bernanke attempted to tell the investment world today, that QE may not be necessary because of a modest improvement in the statistics of unemployment, if that was truly to be believed, then the stock market should have been off 800 points while gold was gold was down $100. Because the same thing moving the stock market is what's moving the metals and that is pure liquidity"
In a King World News Interview, Michael Pento, who founded Pento Portfolio Strategies comments "Global central banks have now entered the twilight zone of monetary policy. Never before in the history of planet earth have we seen such a synchronized counterfeiting scheme to monetize insolvent sovereign debt! ..." read more.
As I mentioned earlier, the easy money was made in gold, but let me tell you where lies yet a hidden treasure and the best trading opportunity in decades ... and that is in the silver market!
According to Eric Sprott, of Sprott Asset Management and the PSLV Silver Trust ETF, the Gold to Silver ratio should narrow to about 16 from the current levels around 50. This puts the Silver market fair value at around $100 per ounce and according to Mr. Sprott ... this will be the decade for silver ... read more
Eric Sprott, had this to say about what took place the day of the plunge in gold and silver:
"I can only imagine it's the same forces that for the last twelve years have been at work in the gold market, trying to keep the volatility very large on the downside. As you are aware, we hardly ever get days when you get an intraday $100 rise in gold. When we look back at what happened (on Wednesday) we saw huge sell orders in gold and silver." Eric Sprott continues:
If we take a look a little closer at the weekly silver chart above we can see the bottom of this leg was made on Dec 29, 2011 at 26.14. Since this low was made a rally ensued that produced a whopping $11.34 per ounce gain or a 43% move in just a couple of months. It is fair to say the market is overbought at these levels and testing previous levels of support could be very healthy for the bulls long term. As it consolidates at these levels it should continue to offer a major buying opportunity. This unprecedented move appears to confirm we could be looking at the first leg of the yearly cycle for 2012.
Using the high of 37.48 made on February 29th and the low made on Dec 30, 2011 of $26.14, we can identify the following Fibonacci support and retracement levels:
Use any corrections into major support areas to accumulate the actual physical metals as the strong cash money or institutional physical buyers have stepped up their bids around the recent lows made last week.
A weekly close above last week's highs of 37.48 would confirm the markets next upside target of 45.12 then 49.50, the 2011 highs made on April 29, 2011.
Disclaimer: Precious metals products trading involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.