Gold and GLD BLast Through Resistance, Precious Metal Stocks at Mercy of Stock Market Correction
Commodities / Gold & Silver 2009 Oct 12, 2009 - 05:06 AM GMT
Gold had a big week, rallying up $46.40 to close at a new all-time high of $1049.40 (continuous contract) for a gain of 4.63%.
On the daily chart below, GLD blasted up through overhead resistance from the Sept. high (blue horizontal line) and never looked back.
Volume expanded on the move, which is a good sign. MACD made a positive crossover, with RSI and CCI up strongly into overbought territory.
The weekly chart shows the inverse head & shoulders formation finally confirmed with last week’s breakout. All the indicators are in positive territory.
Broken resistance now turns into support. Once support is tested, and holds, the next phase in the gold bull will be off and running. The upside target potential is 1300 (1000-700=300, 1000+300=1300).
Silver
Silver had a huge week, up $1.59 to $17.73 (continuous contract) for a 9.89% gain. The daily SLV chart below depicts a cup and handle formation.
Price broke above the rim in Sept. and rose to just above 17. It then declined and tested support along the handle (16) and broke out strongly with a gap up.
MACD made a positive crossover and the histograms have turned up as well. RSI has plenty of room to move up before being overbought.
Silver has outperformed gold for the year (approx. 69% versus 23%) yet it is still 15% below its 2008 high. This is a testament to how well gold performed during the deflationary collapse. Gold held its value better than any other asset.
All of the indicators are positive and bode well for silver; however, there is a significant amount of overhead resistance from 16-18 going back to April – August of 2008. Note that silver has surpassed its 61.8% retracement level. It has come a long ways in one year’s time.
Gold Stocks
The gold stocks, as represented by the GDX, had a big week, gaining almost 13% to close at 48.29. Notice how volatile the gold stocks have been since the beginning of Sept. They have broken above and below horizontal support a couple of times.
Last week they were bumping up into overhead resistance and MACD was under a negative cross and headed down. This week they blew right through resistance and made a positive MACD crossover.
The one negative is RSI is showing a negative divergence (failed to make a new high). For now the weight of the evidence is bullish until it isn’t. The last two candlesticks show indecision, which sometimes foreshadow a reversal.
The monthly chart of the XAU shows a long term cup and handle formation. You can see the sharp drop in 2008, a good portion of which has been regained in 2009. As long as price stays above the handle (160) the long term prospects are good.
The major risk I see to the pm stocks is overall market risk. Stocks have had a big run without a significant correction. A lot depends on the dollar: if the dollar rallies it will put a head wind to stocks, commodities, and the precious metals. As of now, however, the trend is up and will remain so until it isn’t.
The above excerpt is a small sampling from the latest full-length market wrap report, available only at the Honest Money Gold & Silver Report website. All major markets are covered with the emphasis on the precious metals. A free trial is available by submitting a request to: dvg6@comcast.net.
Good luck. Good trading. Good health, and that’s a wrap.
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Douglas V. Gnazzo
Honest Money Gold & Silver Report
About the author: Douglas V. Gnazzo writes for numerous websites and his work appears both here and abroad. Mr. Gnazzo is a listed scholar for the Foundation for the Advancement of Monetary Education (FAME).
Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.
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