Gold has the appearance of undergoing a correction from the early July swing high, and that makes it somewhat featureless, for lack of a better description. There are times one needs to simply be idle until greater clarity emerges. This seems to be one of those times, at least from the perspective of the faux-paper market where one will not find a single hint of supply/demand reality…
The comments above and below are excerpts from an article by Michael Noonan (EdgeTraderPlus.com) which has been edited ([ ]) and abridged (…) to provide a faster and easier read.
Gold – Weekly Chart
It is apparent that the near-term trend is undergoing a correction, evidenced by the bars from the last 8 TDs in the chart below. (Trading Days). However, note how labored and overlapping they are, in contrast to the first 3 TD rally in July. Fast up, slow down, typical behavior in an up trending market.
There is not a lot of symmetry in potential support from the weekly and daily charts, so one has to give more room as to where any correction may end. 1300 looks strong on the weekly, but not on the daily. There are a few points of possible support on the daily, from 1320 to 1290. Best just to let the market run its course.
Gold – Daily Chart
We almost always use the words “potential” and “possible” when describing support or resistance levels, not to be ambiguous, but potential remains potential until it is proven. Some may prefer more concrete observations, but the markets are never that concrete. Those who seek more absolutes simply do not appreciate the unrelenting nature of the market to always define itself on its own terms and not as some may choose to surmise.
Silver – Weekly Chart
We neglected to comment about the ease with which silver sliced right through the entrenched resistance at the 18.60 area [as seen in the chart below]. This would be a classic example of what we touted as resistance without qualifying it as “potential” resistance. As it turned out, 18.60 offered no resistance, so the adjective “potential” would have applied as it was never proven to be otherwise. Little else can be added to the following chart comments.
For months, we have been saying silver is preferred over gold by virtue of the historically high gold:silver ratio, when it was running around 84:1. For those unfamiliar with this ratio, at 84:1, it would take 84 ounces of silver to buy one ounce of gold. The probability of the ratio contracting was high. 15:1 used to be a long-standing relationship between the two metals, so expectations as to where the ratio may head is purely conjecture but one with a higher than not probability backing it.
A few months ago, to serve as an example, we traded some gold for silver at 75:1, when the ratio was nearer 80:1, the difference being transaction costs but not out-of-pocket expense. Ten ounces of gold translated into acquiring 750 ounces of silver. With the ratio currently running around 66:1, we got more silver than is currently available in a switch from gold into silver. Were the ratio drop to 40:1, the 750 ounces, using a 4 ounce cost for switching and making the ratio 44:1, the 750 ounces can be traded for 17 ounces of gold. That represents a 70% gain in the number of ounces for one’s gold holdings by managing the gold:silver ratio. If the ratio were to contract to 30:1, 20:1, even 15:1, the results are even better. For those who dismiss this option because they do not like the idea of a transaction cost, the numbers do not lie, but if that is your preference, you would still hold your 10 ounces, unchanged over time.
Silver remains the preferred metal based on the reality of an expanding and contracting gold:silver ratio.
Disclosure: The above article has been edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide a fast and easy read.
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