Important Levels for Gold and Silver Traders Are Watching

11/18/2010 12:01 am EST

Focus: COMMODITIES

Corey Rosenbloom

Founder and President, Afraid to Trade

By: Corey Rosenbloom
                            
Corey is speaking this week at the Traders Expo in Las Vegas.

What levels should we be watching in gold and silver prices to see if this pullback phase is just an expected and overdue retracement… or perhaps the start of a deeper reversal?

Let’s take a quick look, starting with Gold:

chart
Click to Enlarge

A sort of semi-indicator free pure price look reveals that the initial level to watch is the rising 50-day EMA, currently situated at the $1,330 level. It held so far as support on Tuesday, but watch closely what happens here.

There’s prior price support at the $1,320 level from multiple, successful tests (inflections) off that price, so gold could hit that level if the 50d EMA initially fails.

What then? A breakdown under the $1,320 price and EMA support leads to a test of the “round number” level of $1,300, which provided slight resistance before the powerful and decisive breakthrough on September 28.

An eventual price breakdown through $1,300 argues in favor of a potential short-term price trend reversal that could see the $1,260 or even $1,200 levels realized over time.

Of course, if price supports at the $1,320 level, then the uptrend would continue and this would be nothing but a standard pullback. That’s what the $1,320 and $1,300 level are key to watch.

Silver has its own important level to watch:

chart
Click to Enlarge

Silver’s level is a bit more obvious than gold’s, as the chart forms a distinct confluence at the $25 level.

That’s because the 20-day EMA rests currently at $25.39, but also as important, the October swing high rests at $25.00.

The $25 level also provided minimal resistance in early November prior to a power-break through that level.

So, buyers/bulls need to hold the $25 level to keep this up-move going. Any breakdown under $25 immediately targets the 50 day EMA–similar to the logic I used in this morning’s post on the S&P 500 and the 20/50 EMA targeting method.

That would, of course, be a short-term target, and any move under $23 would place the trend in jeopardy of reversing.

Breaking under $23 shatters the 50-day EMA and then the prior swing low from mid-October at the same level.  Watch $25 initially, and then $23 if a steeper pullback does occur.

As always, what happens to one is likely to happen to the other, so both gold and silver will either hold these levels… or break them. Determine if you may need to adjust accordingly.

Corey Rosenbloom is a trader and blogger at AfraidToTrade.com.

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