Last month, chart patterns of gold and silver were in strong bull markets. The yellow metal seemed unstoppable and my advice to investors was to enjoy the ride by maintaining trailing stop-losses. Silver’s rise had appeared a bit too sharp, and the possibility of a correction below the 14 day SMA was mentioned.
Gold Chart Pattern
After touching another new high of 1565.70, gold’s price faced some selling pressure and closed below 1520 on May 4 ‘11. At the time of writing this post, gold’s price further dipped to the 14 day SMA and is hovering near it. Such corrections are good for the longer-term health of the bull market.
As long as the US dollar keeps weakening against most major currencies, the bull market in gold is likely to charge along without facing too many hurdles. Continue to remain invested with trailing stop-losses and use dips to add. The only concern is that every one else seems to be following the same strategy. And the herd is usually wrong.
Silver Chart Pattern
The near-vertical rise in the price of silver hit a brick wall after touching a new high of 48.70, and started dropping like a stone - slicing through expected support from the 14 day SMA like a hot knife through butter. The closing price on May 4 ‘11 was just below 40, and the sharp correction continues today. At the time of writing this post, silver’s price has fallen below 37 to the 60 day SMA, and may correct further.
The next support level is at 34. If that support doesn’t hold, the next support is at 30. As long as silver’s price stays above the rising 200 day SMA, the bull market will not be under threat. But don’t rush in to buy yet. No point trying to catch a falling knife. Wait for it to hit the table, where it should vibrate a bit. That is the time to grab it.
Sudden and gut-wrenching drops in silver’s price – a 25% correction in a week – isn’t unusual, as can be verified from longer term charts. It is for this very reason that one should strictly maintain a trailing stop-loss to protect profits.
