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Global Trade Desk- Silver and Gold Divergence

Daily Client Note

Gold and Silver Bullion Review


Silver and Gold Divergence
 
Quick-View:
The last 4-hour chart Silver Bullion (39.00) signal was generated and sent to clients on Aug 05 11 with a break below 38.70 that targeted 37.90 which offered a very choppy and overlapping ride lower. The previous Silver Bullion moves had been aligned with gold during 2011, which is a pattern that came to a halt in August.

The last 4-hour chart Gold Bullion (1740) signal was generated Jul 05 11 with a break above 1515 that targeted 1625 and subsequently 1725 . Gold and silver trade swapped their highly correlated pattern of trade to one which saw gold buying and silver selling in equal measure, across near and mid-term time-frames.

The Daily chart Gold Bullion long signal generated Feb 18 11 with a break above 1395 still has not signaled that it needs to be closed, and is now well enough supported to think that it may just keep plodding higher with a 2000 target.

Headlines:
News wires are talking down the value in buying bullion at these levels; just as they did when gold traded at 675, 795, 990, 1190, 1275, 1350, 1460, 1525, and 1575. The shadow gold and precious metal standard is certainly in place.

Bullion Correlations:
Daily trading range is $33 on gold and $1.75 on silver, which are above the historical norm, indicating that speculative interest is building and that any dips will likely be bought.  The 100-day Simple Moving Average (NYSE:SMA) on silver is at 38.40. The Gold bullion is losing its 12-month correlation to silver in the near-term.

Gold Bullion Technical Section:
The break higher on XAU from 1680, which stood as near-term resistance, has allowed a technical test of 1810 to happen. The sustainability of the move will be determined by the reaction this week to mid-tier economic announcements and more importantly, to breaking news headlines concerning global government debt levels.

Those looking to get on the long side of gold bullion have missed the boat in the near-term, and should patiently wait for a technical pull-back that tests 1550 support. It would seem that buyers will now be entrenched around the 1695 area, which would be a main price point to gauge the strength of the buy-the-dip pattern of trade which has dominated this year.

It was reported to clients over the previous weeks that the 20-day SMA area at 1640 would be a major support point that was unlikely to be easily broken, and a price area to buy gold from. It was from that area traders saw the recent bullish run.

No new long-term long signals will form on XAU until a Weekly chart closes above 1820. No long-term short signals will form until a Weekly chart closes below 1560. Look to buy the next test of support at 1590.

The overall outlook on bullion remains bullish, and a buy-the-dip pattern of trade has dominated for two years now. Any short positions need reduced exposure and near-term targets, and should only be taken on the understanding that Gold Bullion trade is currently in a massive bull run that has plenty of support areas.

Silver Bullion Technical Section:
XAG is trading in a price channel between 34.00 and 42.00 which was formed from May through August 2011 that is holding steady after the last test of support at 36.90 found silver bullion buyers. Although not as bullish as the overall Gold Bullion outlook, the potential for Silver movement does draw in a test of 42.50 if the pattern of buying the dips continues through 2011 and 38.40 holds as near-term support.

The 100-day SMA area at 38.40 has created a potential base for long momentum to build from technically, with little in the way of a move towards 42.00 in the near-term. No mid-term long signals will form on XAG until a Weekly chart closes above 42.50. No mid-term short signals will form until a Weekly chart closes below 34.50. 

Near-term intra-day signals are all that XAG is offering which buy the tests of support at the previous session low and sell tests of resistance at the previous session high as intra-day trades.  A mixed mid-term trend is in place, but silver bullion retains a bullish long-term bias.