Phys and PSLV – 6 May

PHYS, the real gold bullion fund,bounced right off of what should have and proved to be very strong support at 12.40. The premium to NAV of this fund is currently .4% and represents a huge bargain for gold bullion. Resistance is around 13.0 and was the top of a trading range that contained prices for nearly 2 months. RSI sunk to its lowest level in some time and then has tracked to neutral. Stochastic has reached over-sold level and is starting to hook, suggesting a short term bottom is on. The trend is now neutral with a lower low put in, however the a lower high is almost a certainty and would lock in a new short term downtrend.

The longer term chart shows the bounce occurred at the Fibonacci 61.8% price retrace level, a natural level that attracts price action. Resistance will be occur at the Fibonacci 38.2% level above which also corresponds to chart resistance from previous swing highs. My feeling is that it is going to take a sustained rally in the dollar along with improving economic fundamentals to drive gold substantially lower. I just do not see happening. Rallies in the dollar will be sharp and short and I think these will be due to short covering and liquidity issues, not due to economic improvement. In this environment, I believe gold will lose far less than usual during dollar spikes. The safe haven aspect in gold is only getting stronger. The near term bottom appears to be in with strong support at 12.40. It would not surprise me to see sideways action with an up ward bias, working back up and above 13.0, essentially back filling the area between 13 and 14 with a series of waves instead of our previous near vertical 3 week trend.

PSLV, the real silver bullion fund, saw a similar bounce off support around 14,90. The premium to NAV on this fund is at 14.2% and is low considering recent premiums over 20%. There is a gap 16.70 and 16.40 that is almost nearly filled. I expect that gap will fill next week completely and a lower high will be established at some point that locks in a new short term downtrend. The 100 day moving average (gold) proved to be support on this impulse down. RSI bounced very near over-sold levels at 30. Stochastic is usually a leading indicator and is hooking up from over-sold territory below 20. A cross of the 20 level will target the nearest moving average as resistance or in this case the 50 day MA at 17.85. Some weak resistance will lie between current price and that MA around 17.20.

The Fibonacci overlay shows the intensity of drop in silver price, where it sliced through all levels of natural support and ultimately found support at a major swing low level at 14.86. Support when breached always becomes resistance on the way back up. So, we can expect those Fibonacci levels at 17.26 and 18.62 to impede upward movement. Again, the 17.26 area looks like a logical point for a lower high to be set.

This chart shows PSLV since its inception. Notice how price pivoted away from the long term trend line in late January. It has nearly retraced all the way back to that trend line and in doing so has taken on the the greatest over-sold condition to date with a RSI reading just above 30. Stochastic has been this over-sold since the 1st major swing low that established the trend back in January. This speaks strongly to the idea that the near term bottom is in and as with gold, the vertical move will be digested with smaller bites in a series of waves. This type of price action is linear vice parabolic and far more sustainable.

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This entry was posted in Gold, PHYS, PSLV, Silver, Technical Analysis. Bookmark the permalink.

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