Critical Days Ahead For Precious Metals Prices

Includes: GLD, SLV
by: Tim Iacono

Admittedly, I'm neither a short-term trader or a technical analyst but, over the years I have noticed how significant some chart patterns seem to be and there's a doozy of a chart pattern that is now set up for precious metals.

In the weekend commentary, it was noted that a symmetrical triangle pattern had emerged for the gold price and that this pattern often times results in a big move out of that narrowing trading range. The chart below via StockCharts was presented as evidence of such.

Well, precious metals did see a big move yesterday as the gold price tumbled nearly $20 an ounce and silver plunged about 50 cents an ounce leaving the gold chart looking like this:

Clearly, the $1,650 an ounce level (or thereabouts) is now serving as an important source of support as the gold price hasn't been substantively lower than that since last summer and short-sellers are no doubt licking their chops in anticipation of an even bigger move down.

Of course, buyers in Asia are also probably licking their chops too as the prospect of even lower prices means they might be able to get more metal for their money.

Due to the Chinese New Year, there are a dearth of gold buyers in the Middle Kingdom this week and that no doubt accounted for some of the weakness in metal prices yesterday. The way it looks right now, they'll be pleasantly surprised at the bargains that greet them when they return next week.

It turns out that, as detailed in this item yesterday, gold exports have become a key factor behind the recent narrowing of the U.S. trade deficit as we shipped some 20 tonnes of the metal to other parts of the world in December, most of it likely ending up in Asia.

As for silver, it too has some critical days ahead since it's been repeatedly turned back from the $32+ an ounce level and, after the recent reversal, it may drop another dollar before it finds major support.

Of course, the long term picture for gold and silver remains the same - very bullish - as the chances of policymakers exiting from their multi-year money-printing/deficit-spending extravaganza without creating either high inflation or a new financial crisis of some sort are virtually nil.

Under either of these circumstances, investors will suddenly take a new shine to precious metals.

Regardless of what happens in the days ahead, long-term holders of exchange traded funds such as the SPDR Gold Shares ETF (NYSEARCA:GLD) and the iShares Silver Trust ETF (NYSEARCA:SLV) should just sit tight and they are sure to be rewarded, though the weeks and (possibly) months ahead could be a bit difficult.

Those new to this sector will surely do well over the long-term by taking advantage of the lower prices now being offered.

Disclosure: I am long GLD, SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I also own gold and silver coins and bars.