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Precious Points: Ready, Set, Retrace

"We've already seen the start of support above the 5-week moving average, about $900, and could see a healthy retracement next week that still won't preclude further declines if not making a significant new high. Silver has not invalidated a corrective count either. That wouldn't occur until nearly $17.50. The 5-day moving average ... will be crucial early next week in determining support and resistance. A platinum group metals play based on shrinking supply could be a haven if the more monetary metals are due for a near term correction." ~ Precious Points: New Month, New Direction? February 02, 2008

This update is intentionally brief since TTC has suspended its regular weekly newsletter as mentioned last week in Dom's Market Update. Normal services continue as ever online in the TTC forums.

The chart above from last week shows a retracement due after the heavy Feb 1 selling, and the chart below shows that retracement having appeared as planned according to common Fibonacci proportions. Essentially, nothing changed last week in the technical analysis of gold. Even a new high will not invalidate possible counts that anticipate a return to the low $800's and could even trigger a cascading, rapid decline.

The chart below shows silver spending most of the week below its 5-day moving average, but never straying too far and ultimately managing to close the week with a strong rally back above $17. The white metal can extend to 17.40-17.50 before facing significant resistance, and it may be interesting if this is where it is if gold regains its recent highs.

Precious metals gained some ground this week on the back of a rate cut from the Bank of England and a somewhat less hawkish tone from the ECB's Trichet. With Euribor futures predicting 75-100 bps of easing by the end of the year, the dollar remained buoyant against major currencies and precious metals smartly rallied on the easing monetary policy and optimistic economic outlook.

But even as the yield curve steepens, credit concerns remain and the Fed returned its attention to rabid inflation over the last few days, possibly lowering expectations to maximize the effect of the next cut, but also signaling an end to the "shock and awe" style dramatic rate cuts of last month. Those looking for $1k gold continue to be thwarted as the monetary metals have to prove themselves in the short term by taking out key upside levels and invalidating corrective counts. At the same time, platinum continued its tear higher on the back of fundamental supply concerns in South Africa and is yet to show signs of letting up.

 

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