Gold: Another Technical & Seasonal Low?

11/09/2012 10:20 am EST


Thomas Aspray

, Professional Trader & Analyst

The seasonal analysis on gold correctly identified the major summer low and the daily technical studies now indicate that the recent correction is likely over explains MoneyShow’s Tom Aspray.

It was another rough session for stocks Thursday and further overnight selling in Asia will again hit stocks early Friday. The closeness of the major averages to long term support and the oversold technical readings makes an oversold bounce likely by the middle of next week

Just a week ago the precious metals were hit hard as the December Comex gold contract lost over $36 per ounce and the Spyder Gold Trust (GLD) lost over 2%. This drop likely shook out the remaining weak long positions as both gold and silver have since rebounded nicely.

This rally has turned the daily technical studies slightly positive. As was the case last summer the technical and seasonal analysis both favor higher gold prices as we head into year-end. The seasonal chart from July shows that prices typically correct in October before again turning higher in November.

The next major seasonal high typically occurs in February. The December Comex gold contract peaked on February 29, 2012, at $1800.90 and then dropped to a low of $1535.40 in May. As I discussed in August, the monthly and weekly technical action indicates that gold will make new highs in 2013.

The leading gold and silver ETFs could see one more pullback in the next week, which is likely to be another buying opportunity, let’s look at the evidence.

Click to Enlarge

Chart Analysis: The Spyder Gold Trust (GLD) has bounced 3.5% from the correction lows at $162.30. GLD found support between the 38.2% and 50% Fibonacci retracement levels as the daily uptrend, line a, was briefly broken.

  • The 50% retracement support is at $161.30 with the 61.8% support at $158.29.

  • The daily OBV has moved back above its WMA but is still below the bearish divergence resistance at line c.

  • This divergence warned of the short-term top in early October.

  • The weekly OBV (not shown) tested its WMA on the correction but has now turned higher.

  • The close Thursday was above the 20-day EMA which is just trying to flatten out.

  • There is next resistance at $168.50 and then stronger in the $170-$172 area.

  • The next upside target is the 127.2% Fibonacci retracement level at $177.31.

  • There is minor support now in the $165.60 to $166.50 area.

The iShares Gold Trust (IAU) shows that the daily starc- band was tested on November 2. The low also tested the converging chart and trend line support, lines e and f.

  • On the chart I have drawn in red what a pullback over the next week might look like.

  • There is next resistance in the $17 area and then at $17.20-$17.40.

  • The 127.2% retracement target is at $17.80

  • The daily on-balance volume (OBV) has been stronger on IAU than GLD on the recent rally as the downtrend, line g, is being tested. Volume has been strong over the past few days.

  • The OBV is well above its WMA and it could be retested on a pullback.

  • There is short-term support now at $16.50-70 with the recent low at $16.29.

  • The 50% Fibonacci support is at $16.20.

NEXT PAGE: Let’s Look at Silver Next


Click to Enlarge

The iShares Silver Trust (SLV) tested the 50% Fibonacci support level and the daily starc- band a week ago as the low was $29.84. When prices are at the starc- bands it is a high risk area to sell and a low risk area to buy.

  • SLV is now close to the resistance at $31.52 with stronger at $32.40.

  • A daily close above $33.25 will confirm that the correction is over.

  • The 127.2% Fibonacci target is at $35.25.

  • The daily OBV has not yet moved back above its WMA with further resistance at the early October highs.

  • There is more important OBV resistance at the downtrend, line b.

  • The weekly OBV (not shown) is back below its WMA but has now turned up.

The Global X Silver Miners (SIL) has held up much better than either GLD or SLV, which is a bullish sign as the recent period of consolidation shows a flag formation, lines c and d.

  • A daily close above the November 1 high of $25.40 should signal that the correction is over.

  • Near-term upside targets at $26.80-$27 and then at $29.05, which was the September 2011 high.

  • The all-time high is at $31.40, which could be exceeded in 2013.

  • Volume surged at the end of October and the OBV does show higher highs as it is acting stronger than prices.

  • The weekly OBV (not shown) is well above its rising WMA and is acting very strong.

  • There is initial support now at $23.75 which if broken decisively could signal a drop to the 38.2% support at $22.36.

  • The 200 day MA is at $21.57 with the 50% retracement support at $21.31.

What it Means: Though the drop a week ago was a bit scary, it took prices into the new buying zones that I outlined in “Coming Soon: $2,000 Gold, $40 Silver?”. The decline also helped to reduce the bullish sentiment, which had reached uncomfortably high levels in September.

Another test of these levels is possible over the next week where those that did not buy last week or during the summer could still buy.

My recommended buy level in Global X Silver Miners (SIL) has not yet been hit and one may have to wait until the flag formation has been completed. (I will update my recommendations on Twitter, if needed) A break of the recent lows is still possible, which should set up a good buying opportunity.

How to Profit: For Global X Silver Miners (SIL), go 50% long at $23.14 and 50% long at $22.48, with a stop at $20.95 (risk of approx. 7.9%).

As previously recommended on October 19: Should now be 50% long the iShares Silver Trust (SLV) at $30.90 and 50% long at $30.34, with a stop at $28.32.

For those not previously long should have gone 50% long the iShares Gold Trust (IAU) at $16.56 and 50% long at $16.34, with a stop at $15.72.

Portfolio Update: For investors holding a 50% long the SPDR Gold Trust (GLD) at $152.42 and 50% long at $150.28, use a stop now at $157.22. Will raise the stop once the uptrend has been confirmed.

Investors should be long multiple positions in the iShares Gold Trust (IAU) from $15.68 to $15.42, with a stop at $15.72. I will raise the stop once the new uptrend has been confirmed.

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