Sunday, September 25, 2011

Is it Time to Get Back into Gold and Silver ?

Silver and Gold have been crushed during the last two days of the week. Let's see where we are in the long term trends and if there could be a buying opportunity right now.

Let's start with Gold and the chart between April 2006 and September 2011. (Source: Boursorama)

Gold has been in a upward channel since 2008, it has recently broken the trend on the upside, but is now back to trend, but not yet at the bottom line of the channel. If you believe the fundamentals (and trend) for Gold have not changed, you could start to buy now, but this would be a screaming buy around 1500 USD per ounce.

The RSI is at 33, so it is not technically oversold yet. This will be technically oversold when if it is below 20 or 30 (different sites use different thresholds).

If you wait a few more days, you could buy at lower price. But as I have learned with Gold, the correction seldom comes and I have wrongfully postponed purchases in the past.

Now let's look at Gold from a longer term perspective with the logarithmic chart of Gold between 2000 and 2011.
There is also a long upward trend here, but the lower line of the channel is around 1200 USD per ounce. The last time, it touched the lower line was during the 2008 market panic. If you believe we are going to experience a similar scenario where everything will be sold due to margin calls, then you might want to start buying Gold below 1300 USD per ounce.

Now, let's see the case for Silver. Actually since Godl and Silver are highly correlated most of the time, we could consider following the Gold charts above to time Silver buys. Having said that, here's the silver chart (via SLV ETF) between April 2006 and September 2011.

Although it's not as clear as with the Gold chart, there is an upward channel since 2008, with the current SLV price of 29.98 and the lower line of the channel around 27.50 as well as an RSI of 23, it could be a good timing to start buying tomorrow especially if Silver corrects further. Of course, if Gold goes back to the lower level of its 10-year channel, then this won't be a buying opportunity as it could fall much further. However, if Gold goes back between 1200-1300 as discussed above, Silver could go into the low 20s.

To conclude, if we don't go through a major market panic in the next few weeks, it should be a good time to buy Gold and especially Silver. But if you believe it's likely there is an across the board sell-off of all assets irrespective of their fundamentals, you may consider delaying those purchases.

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