Gold & Silver Consolidation TimeFrom the lows around $1526, gold has moved more than $200 higher. In the short term, both gold & silver are now technically overbought.
You can see that many indicators are in "nosebleed" territory on this daily chart. Please note how far the gold price has moved above the upper green Keltner line. Some profits need to be booked, and the addition of some light strategic short positions is recommended now, but gold could take out the highs before correcting further.
There is a head & shoulders pattern in play on this two-day gold chart. It implies that gold could attack the recent highs in the $1745 area. I believe that when gold rose over $1680, it ushered in a new era for traders. Price corrections could become very short in terms of time, but very violent.
You got a "volatility appetizer" on August 31, as gold plunged to HSR (horizontal support & resistance) at $1648. By the end of the day, it was almost $50 higher, trading near $1695!
When dealing with periods of extreme volatility, it's important for investors to be sure they have their orders entered in the market. In this "new market era", gold & silver prices may only trade at key price areas for a few seconds of time.
Silver is even more overbought than gold is now, which means that it could trade erratically, as highly leveraged momentum traders do battle with equally leveraged top callers.
The RSI indicator has a very big nosebleed, and CCI is offering the first hint of a technical non-confirmation with price action. Silver has also encountered some significant HSR on the sell-side.
Note the enormous crash in silver that occurred in late February of this year. In just one day, silver plunged $4, as gold plunged about $125. Given the technically overbought condition of the daily silver chart at this critical juncture, it would seem reasonable to book some profits and/or add some light short positions.
I don't own as much silver as gold, so I'm quite stingy in the amount of silver I'm willing to sell or short-sell at these prices, which are very low in the biggest "super-crisis picture".
Please note that I used term, "book profits". Gold & silver are two of the greatest assets in the world, and I don't think investors should book losses on them, in an attempt to avoid possible fiat currency drawdowns. Drawdowns are part of the investing game, especially in a crisis.
In the very short term, silver could still go to new highs, before experiencing a little bigger price correction. As well as gold is performing now, silver is performing even better.
The head & shoulders pattern on this short term silver chart suggests the price could rise to $34.20 or higher before correcting.
Are gold stocks overbought, too? A spurt higher in gold & silver could see GDXJ charge up towards $25.15. At that point, key technical divergences would likely be apparent, and investors could engage in a little heavier profit booking.
On the downside, there is buy-side HSR now at $22.37. GDXJ could simply "tread water" in that price area. Price corrections can alleviate overbought conditions on charts, but so can sideways consolidation.
Senior & intermediate gold stock investors may have good reason to be nervous, when looking at the ominous overbought conditions on this GDX daily chart.
The FOMC meeting begins tomorrow, with a policy & guidelines announcement made on Thursday. If the announcement is positive for gold stocks, it could become a case of "sell the news" for professional investors, but I wouldn't expect too much of a pullback.
Like GDXJ, I would expect GDX to consolidate, rather than "fall apart", on whatever Fed announcement is made. QE3 could be announced, but even if it isn't, most professional investors are anticipating that it is coming soon.
I would expect that any sell-off would likely be limited by HSR near $48 and $44. I've drawn in a green triangle. I'd suggest you place a pyramid of buy orders in that area. When the predicted consolidation ends, I believe the next move is towards $60!
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