Gold and Silver Update – 5 May

Do not panic! This is a waterfall. For those who are new to this stuff, we haven’t had one in some time and this is what silliness looks like. Buy, Buy, Buy.

So should you panic? Lets look at what the chart says. Price has just now reached the bottom of the trend channel and support around 1470. This level is strong natural support and a Fibonacci 38.2% level. Failure sets up a re-test of the 1445 area which is even stronger support and corresponds to another natural Fibonacci level, this one the 50% retrace. A pullback to the next level below there would be the Fibonacci 61.8% level and also corresponds to the 100 day moving average. RSI is now back to dead neutral, along with stochastic. The 50 day moving average(blue) is just under the current price and it would not surprise me at all if it proves to be critical support. The 100 day moving average(gold) is the worst case scenario IMO, currently at 1412.

The longer term chart yields a little perspective. As Jim Sinclair says “don’t panic, this is normal.” Price is just now reaching the middle of the current uptrend channel. This chart clearly shows strong support at the 1425 level that corresponds to the top of the prior trading range before the breakout. The 100 day moving average is moving into this price zone and has provided critical support and reversal points for previous downtrends. This price level would only represent a 10% decline from the all time high and would be considered a minimal pullback in the grand scheme. Panic time? Me thinks not.

Silver! Is your hair on fire yet? If you can’t handle the volatility, silver is not your deal. Where gold is just now reaching a natural 38.2% Fibonacci retrace level, silver has cut right to the chase and smoked through both the Fibonacci 38.2% and 50% levels like nobody’s business. Support is coming in at 33.58, a previous swing low and also corresponding to the  100 day moving average (gold). If 33.58 fails, and I think it will, then 31.74 is the next test. I would not be surprised to see this level hold. Worst case is the 200 day moving average (red) and happens more in silver than in gold due to volatility. This level is currently at 28.29 and very close to a 100% retrace of this big and uninterrupted uptrend. RSI is now at over-sold levels, but volume is still real high on SLV. That tells me that exhaustion to the downside has still not materialized. Stochastic is now over-sold. Look what happened the last time RSI and stochastic were at these levels. I think 32 is the likely reversal point and 28 would be the gift from heaven.

The longer term chart yields perspective as with gold. The long term trend is still in place even after the massive devastation at the Comex. 32 is good support, but the Fibonacci 61.8% level at 30 looks to be made of steel and is where the 200 day moving average is converging on. I like 32 for the bottom.

And finally, look at the price where the longer term uptrend is re-joined. Yep, it looks to me to be 32. In the long term, I see the upper boundary of the trend channel providing support.

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