Gold & Silver: The Calm Before The Storm

In September I warned you about the possible weakness in both gold and silver after a good rally as strong reverse signals appeared on the chart. That warning alert paid well as the metals dropped heavily – gold lost more than 7%, and silver fell more than 10%. I hope it helped those of you who had market exposure that time.

There are updated charts below with further price action forecast, which is based on pattern recognition and market staging approach. I hope my detailed graphs with annotations will help you understand market behavior, training your eyes to recognize patterns and determine market stages with me.

Chart 1. Gold Daily: The Baby Bird Could Fall Out Of The Nest

Chart courtesy of tradingview.com

In the previous gold chart I put two zigzags to show you possible paths for further price action, the red zigzag was the main option, it showed the downside move with a small consolidation inside. In reality, the drop has been even sharper with just a minor correction within.

For the educational purpose, I highlighted the separate market stages within the blue uptrend channel for you. The strong rally from the beginning of the channel in the $1122 area is the first move to the upside (orange up arrow). Then the market started to make seesaw moves within the $101 range between the $1195 and $1296 (black rectangle), it was a relatively big consolidation. After that, the market continued to rally hitting the $1357 mark (second orange up arrow).

Not to distract you from the current move I didn’t add the AB/CD concept labels. But the concept’s idea worked just perfect as the second rally was almost equal to the first upside move (more than 100%). Amazingly the whole move accurately fits in the blue uptrend reversing right at the top of the channel. This is how ratios and geometry ideally supplement each other.

Now you know that each market move is followed by a consolidation/correction and we can get back to our current price action to determine its status. After the sharp drop, the market has been on a sideways path for more than one month already, and I highlighted it with the black parallel channel. It is very convenient to contour the market moves to project further key points on the chart. It looks like a simple correction, and the first leg to the upside is already done. The second leg is underway, and it could hit the top of the channel in the $1315-1320 area.

Another big drop could follow as highlighted with the red zigzag. Both the black and blue channels’ downsides are intersected at the same point by the red zigzag. We should watch to see if the drop could break below that point ($1270). If done, then the next support sits on the $1205 mark where the last rally started. The invalidation point of the drop is too far now beyond the previous top ($1357).

Chart 2. Silver Daily: Under The Pressure Of An Old Downtrend

Chart courtesy of tradingview.com

Silver also followed the main option set by the red down arrow in the September chart. And the current stage is also a consolidation as in gold as highlighted with the black parallel channel. The red zigzag implies some strength in the metal’s price within the second leg of correction before another drop could occur on the chart. The nearest support is located at the $15.6 mark (December 2016 low).

In spite of the similarity mentioned above in the current price action of both metals, we can observe a strong discrepancy. The Flash Crash in the silver market this July undermined the base for the strong rally as it happened in the gold market, where it threatened the previous top. It wasn’t a case for the silver price as the previous top here is too far beyond the upside of the red downtrend, which lasts for more than a year now. It highlights the huge correction in the silver market, which could retest the previous major low at the $13.65 mark.

The series of the previous tops at the $18.21 (September high) and $18.65 (April peak) levels offer a resistance area, but the price should crack the upside of the red downtrend channel in the first place.

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.