Week Ending 10/09/09
Gold had a big week, rallying up $46.40 to close at a new all-time high of $1049.40 (continuous contract) for a gain of 4.63%.
On the daily chart below, GLD blasted up through overhead resistance from the Sept. high (blue horizontal line) and never looked back.
Volume expanded on the move, which is a good sign. MACD made a positive crossover, with RSI and CCI up strongly into overbought territory.
The weekly chart shows the inverse head & shoulders formation finally confirmed with last week's breakout. All the indicators are in positive territory.
Broken resistance now turns into support. Once support is tested, and holds, the next phase in the gold bull will be off and running. The upside target potential is 1300 (1000-700=300, 1000+300=1300).
Silver had a huge week, up $1.59 to $17.73 (continuous contract) for a 9.89% gain. The daily SLV chart below depicts a cup and handle formation.
Price broke above the rim in Sept. and rose to just above 17. It then declined and tested support along the handle (16) and broke out strongly with a gap up.
MACD made a positive crossover and the histograms have turned up as well. RSI has plenty of room to move up before being overbought.
Silver has outperformed gold for the year (approx. 69% versus 23%) yet it is still 15% below its 2008 high. This is a testament to how well gold performed during the deflationary collapse. Gold held its value better than any other asset.
All of the indicators are positive and bode well for silver; however, there is a significant amount of overhead resistance from 16-18 going back to April – August of 2008. Note that silver has surpassed its 61.8% retracement level. It has come a long ways in one year's time.
The gold stocks, as represented by the GDX, had a big week, gaining almost 13% to close at 48.29. Notice how volatile the gold stocks have been since the beginning of Sept. They have broken above and below horizontal support a couple of times.
Last week they were bumping up into overhead resistance and MACD was under a negative cross and headed down. This week they blew right through resistance and made a positive MACD crossover.
The one negative is RSI is showing a negative divergence (failed to make a new high). For now the weight of the evidence is bullish until it isn't. The last two candlesticks show indecision, which sometimes foreshadow a reversal.
The monthly chart of the XAU shows a long term cup and handle formation. You can see the sharp drop in 2008, a good portion of which has been regained in 2009. As long as price stays above the handle (160) the long term prospects are good.
The major risk I see to the pm stocks is overall market risk. Stocks have had a big run without a significant correction. A lot depends on the dollar: if the dollar rallies it will put a head wind to stocks, commodities, and the precious metals. As of now, however, the trend is up and will remain so until it isn't.
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Good Luck. Good Trading. Good Health. And that's a Wrap.