Apologies in advance for the 200 charts in this post. I just sucked down a 24 oz Monster and spent 2 hours poring over charts, so i figured I'd share all my thoughts. We're at a real crossroads here in the metals, and the next few weeks are going to give us a lot of information. I find it eerie how so many critical points on long term technical charts coincide with all the current events that hang financial disaster over our heads.
Starting with our standard daily chart (2008-present), the 144-day moving average (pink) has been very strong support multiple times in the past few weeks. It now approaches $1600. Meanwhile, the blue trend line (that I originally fit to the 144-day MA) is even stronger support: it's first instance of support goes way back to September 2008, when every moving average was broken. Moreover, that blue line served as support when the 144-day MA was broken (for all of 2 hours) a few weeks ago. Interestingly, the 200-day MA should touch that blue trend line this week, at ~$1540.
The important point is, we've been regularly testing $1580-$1600 the past few weeks, but soon such a test will imply a breaking of the 144-day MA. So we can't consolidate much longer. True, the 200-day MA (and the blue trend line as well) suggest more slack (to $1540), but the monthly chart (that goes all the way back to the $280 gold) tells us that a drop below $1580 at this point would be very bearish. Note below that August and September initially looked like breakout months on the monthly chart, blasting out of the end of a rising wedge. Now, the chart looks more ambiguous: false breakout with double top? At any rate, we need to stay at least within the quickly narrowing wedge this month, or we will probably fall to the 2-year (and potentially the 3-year) moving average, $1200-$1300. So yes, gold needs to be tracked closely in the next few weeks!
On the weekly chart, we see that we never *closed* a week at the lower black trend line. The last time gold hit the lower black trend line but didn't close there was way back in January 2009. On the other hand, almost invariably, when the lower black trend line is touched, there are several up weeks strung together. Note that a close this week at the lower black trend line would still mean ~$1600 gold, so no serious chart damage would have occurred on the daily or monthly charts above. But, to continue the theme, a drop below $1580 would be very bearish on this chart as well.
Another angle on gold. The fibonacci number before 144 is 89 ... and (perhaps not surprisingly) the 89-day moving average (red, below) also appears significant. It demarcates every "piss your pants" correction quite well. It is now effective resistance, at $1664. Watch that level carefully for a clue as to whether the recent major correction is over!
As far as silver is concerned --the bullish COT reports notwithstanding -- I don't think we're even at the beginning of the end yet of this latest historical correction. I see the gold:silver ratio making its way to at least the green line (though admittedly my calls with respect to this ratio have been bad, so judge for yourself).
Then there's the ratio between the 10-year yield and silver. The best way to interpret this ratio is as the amount of silver the Treasury would have to pay you every year (per $100 borrowed) if coupon payments were paid out in silver. Like clockwork, the ratio is declining at a steep pace. Note that when silver was at its "bubble high" of $50, you'd get 0.07 ounces of silver. Today, although silver has "crashed" to $30, the ratio is still at 0.07 ounces of silver. Anyway, it appears that we're making our way back to the top of the purple channel, and that tends to suggest generally flat or lower silver prices over the next month at least.
However, the above ratio does look poised to drop at least to the green dotted "rung" before heading upwards again, so perhaps silver is going to test the $34 level this week or next. That also looks imminent on the daily chart below (please note I've narrowed the horizontal consolidation channel, since there have been no daily closes below what was the center of the previous trend channel. That's not to say $26 won't be tested again, just that as of now, the huge dip to that level looks anomalous.)
The long term daily chart below scares me. It suggests we are right at resistance (grey dotted line) in a textbook bounce off of a major crash, headed back down to $25-26 in the weeks ahead.
However, this long term daily chart (with the more conservatively-sloped trend lines) is much more bullish, since silver has stubbornly refused to fall out of the channel (on a close). I'm keeping my eye closely on this: as long as that channel holds, it's not 2008 all over again.
A similar message is conveyed by a monthly chart that goes all the way back to $4 silver. It's not as elegant as the monthly gold (owing to major volatility), but we see that as long as the price of silver doesn't lose "contact" with the lower blue trend line, we have no reason to believe we're going to drop below the 2-year moving average (black) in a 2008-like prolonged bear cycle. If we could finish the month over $32, I think we can start speaking of a possible new trend up.
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