On September 23, 2012 we published an article on Seeking Alpha called Have We Seen A Short Term Top In Silver And Gold? Taking a look back, the gold market was trading near the 1775 to 1800 levels at the time we posted the article and it has come down to the low 1700s as of October 26, 2012. This was an anticipated cyclical top our proprietary models were able to anticipate months in advance.
As mentioned in the previous article, the reaction to the FOMC was somewhat mixed. Prior to the report, the gold market had been anticipating a more robust package than Mr. Bernanke's announcement and details of the long awaited QE3 monetary policy by the Fed.
According to the market reaction with the price coming down to the low 1700 levels, it appears that the monetary policy announced was somewhat discounted with " Buy The Rumor And Sell The Fact" contrarian sentiment. The market correction has liquidated any weak buyers or sell stops and it appears that it has found major physical support near the 1700 levels.
If we take a look at the daily charts we can clearly see that a bullish uptrend channel is developing. The support level of the ascending support trendline is in the vicinity of 1700. If these levels are able to hold and close above the 1725 on a weekly basis, it would confirm the beginning of the next leg up that points to the 1800 target area. On the other hand, if the market closes below the 1700 uptrend line of support, it can potentially come down to 1695 (50% Fibonacci) and 1671 (61.8% Fibonacci) levels to complete this corrective pattern. It is my conviction that if these levels are reached, they will offer a generational buying opportunity for gold and silver in all forms and types of derivatives.
As we move into the last quarter of 2012, the U.S. and eurozone crisis has taken a backdrop position to the U.S. Elections and the U.S. Fiscal Cliff has taken the front stage during this political campaign. If we take a look at the current U.S. economic situation, it appears that there is no end in sight with the long term inflationary policies of QE3 and the monthly bond buying program by the Fed to pump as much as $40 Billion dollars into the economy on a monthly basis until we begin to see some kind of recovery or growth beginning to take place. The measurement index is the monthly unemployment numbers. Regardless of who wins this election, it seems that there is no other solution but to take the path of least resistance and continue to print as much money as needed.
The problem with the unemployment numbers is that nobody really seems to know what the real unemployment rate is when you take into account the unemployed force that is no longer qualified for benefits and has dropped out of the labor force. The average sentiment with regards to the real unemployment number is not the 7.1% recently reported, but more like 22%. This is more inline with current eurozone unemployment indicators like Spain currently running at 25% and Greece around 22%.
With no end or near-term solution to the world economic crisis in sight, and the relentless creation of fiat currency paper money, this could have more serious hyperinflation implications on a global scale down the road, as world currencies begin to implode. The gold and silver markets are offering what I believe is a historical opportunity to accumulate metals at these tremendously undervalued current prices.
Let's take a look at the daily gold and silver charts and see what the near term price technical forecast telling us. The December (Comex) electronic gold contract closed at 1.7127. The 52 week Range is: 1,535 - 1,815. The market closing below the daily 9, 18 and 36 day MA's on a weekly basis is confirmation the trend momentum is bearish.
With the market closing above the VC Weekly Price Momentum Indicator of 1.711, this confirms the price momentum is bullish. Look to take some profits if long as we reach the 1.721 and 1.730 levels early next week. If stops are taken out here, we could see a rally up to the 1.745 to 1.756 weekly resistance levels.
Buy corrections at the 1.702 and 1.693 levels to cover shorts and go long on a weekly reversal stop. If long use the 1.693 level as a SCO/GTC ( Stop Close Only and Good Till Cancelled order).
The December (Comex) electronic silver contract closed at 32.04. The 52 week Range is: 26.22 - 37.65. The market closing below the daily 9, 18 and 36 day MA's on a weekly basis is confirmation that the trend momentum is bearish.
The market closing above the VC Weekly Price Momentum Indicator of 32.00 confirms that the price momentum is bullish. Look to take some profits if long as we reach the 32.41 and 32.79 levels early next week. If stops are taken out here, we could see a rally up to the 33.21 and 33.75 weekly resistance levels.
Buy corrections at the 31.63 and 31.23 levels to cover shorts and go long on a weekly reversal stop. If long use the 31.23 level as a SCO/GTC ( Stop Close Only and Good Till Cancelled order).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: PRECIOUS METALS PRODUCTS TRADING INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.