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Have Gold and Silver Turned the Corner?

|Includes: GDX, SPDR Gold Trust ETF (GLD), SLV

The $18+ rally in the April Comex gold futures and the 80 cent move in the March Comex Silver futures, on the back of the Chinese rate hike, is impressive. The question is does this mean that the correction in the metals is over? In an article late last month   I continued my discussion of he correction in the metals and noted some key levels to watch on the expected rally. Has anything changed?

Chart Analysis:  The daily chart of Spyder Gold Trust (NYSEARCA:GLD) shows the rally from just under $128 to above $133.

  • The 50% retracement resistance at $133.26 is being challenged today with the 61.8% target at $135.05
  • Volume has been weak on the rally so far and the daily OBV is just testing its WMA.
  • The weekly OBV is still acting very weak.
  • Initial support at $131.25 with more important at $129.25

 

The rally in the iShares Silver Trust (NYSEARCA:SLV) has been much stronger but silver is clearly the more volatile of the metals and in the old days was referred to as the “poor man’s gold”

  • The 61.8% retracement resistance at has already been exceeded with the 78.6% resistance at 29.49 now being challenged
  • The remaining chart resistance is in the $29.90 to 30.44 area
  • On an upside breakout there are targets at $31.75
  • Volume in SLV has also not been impressive
  • The daily OBV is positive but the weekly OBV is still below resistance.
  • The first real level of support is at $27.34-28

What it Means:  For gold futures, GLD and GDX this still looks like a rally within a correction that should terminate in the next week or so. This would set the stage for a test of the recent lows. The case of SLV is different as new rally highs are possible yet they are unlikely to be confirmed unless the volume picks up substantially. Another new high, that was not technically confirmed, would increase the odds of a deeper correction.

How to Profit: As I mentioned previously “ a close in GLD above $136.30 on volume of over 30 million shares would be a sign that the correction was over. For SLV, it would take a close above $29.05, and for GDX, it would require a close above $61.20 and high volume on both to confirm the price action.”  We may get that close in SLV today but not on heavy volume. As per an earlier recommendation,  I recommended hedging long positions in GLD by selling calls against holdings in the ETF. We rolled over into the March 130 calls at around $4.15 and they are currently about $4.40. Would buy this back if there is a daily close above $136.05. We made a few points on the earlier hedge so are still up overall. We have no position in either SLV or GDX  - The Market Vectors Gold Miners ETF. It is acting weaker, currently trading around $57.37 and the anemic rebound is consistent with a failing rally.