That in itself isn’t a big deal — except for the fact that assumption-based and speculation-based trades are notoriously difficult to handicap, if for no other reason than the underlying emotions behind the assumptions can and do linger.
Be that as it may, there are a couple of chart-based ways to get a grip on gold’s (and silver’s) true undertow here.
First and foremost, know that gold’s recent consolidation around $1,339 per ounce isn’t a coincidence. That level has not only been a key floor as well as a ceiling in its recent past; it’s also squarely in the middle of two important Fibonacci retracement lines and just beneath the key 100-day moving average line.
Putting them all together, though a move above that line could be vary catalytic, a move above the $1,339 mark is going to be very tough to drum up. If we do get said breakout, however, gold could reach the $1,424 per ounce area before hitting a wall.
Conversely, if we gave a few more days of failure to hurdle $1,339, the gold bulls may throw the towel in and let the commodity slip back to the floor around $1,189.
Silver’s not been framed by any of its Fibonacci retracement lines, but make no mistake — silver is at the same inflection point as gold. Its near-term floor is at $18.40, and its upside target is $26.20. This week will be a make-or-break one for the more industrialized precious metal.
Between the two possible outcomes for gold, the breakout scenario is the more likely one. The U.S. dollar still has more working against it than for it (like a continued stimulus and an ugly debt-ceiling debate that once again compels foreign and domestic investors to question the stability of greenback-denominated investments). Plus, the general rhetoric surrounding gold still remains positive, even when it’s falling.
It’s not a rally that’s built to last forever, but the foundation could certainly last for a quarter or so.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.