Checking In On Gold & Silver

First, let's start with the breakout in Gold last Summer, which we began highlighting in March 2019 and finally got the successful breakout months later in July. This was a breakout from a 7-year base at the time, so we viewed it as the start of a new long-term uptrend and got long with an initial price objective at the 161.8% Fibonacci Extension of that base.

Click on chart to enlarge view. 

The next major update in our Precious Metals' journey came in December 2019, when Gold had finished consolidating above 37,000 and began to move higher again. The fact that prices were consolidating ABOVE our price objective and not below it was a testament to the strength of buyers. Our view then was that if prices were above 37,000 we needed to be long and looking for further upside towards 44,500.

Additionally, we were finally seeing a short-term trade setup in Silver. Prices had recently attempted a breakout above 49,000, but failed and pulled back to support near 43,575. With strength in Gold as our backdrop, we felt comfortable being long Silver above 43,575 and looking for further upside towards 48,650.

After that rally unfolded, the next major inflection point for Precious Metals came in late May when Silver made its highest weekly close since 2013! This breakout in Silver was a clear sign to us that a new long-term uptrend was beginning in Silver and that we needed to be long if prices were above 48,000 on a weekly closing basis, with targets of 58,000 and 73,900.

And if Silver was just starting to break out, then we wanted to stay long Gold too. At the time, prices were still above our former price objective and new risk management level of 44,500, so our target remained 56,840.

In late July, our first target in Silver was met near 58,000 and the new plan was to use that as our risk management level. As long as prices were above 58,000, we could stay long and look for further upside towards our secondary target of 73,900.

And Gold was still above our risk management level as well, so we wanted to stay long and look for further upside towards 56,840.

And that brings us to this week. Prices of Gold and Silver have both met (or just about met) their upside price objectives near 56,840 and 73,900, respectively. They've met our price target, we want to be taking profits and seeing how they react to these potential resistance levels.

So what's next? If you've been long and are now taking profits, when do you re-enter? And if you've missed a good portion of the move, is now a good time to get in or add to your positions?

The one chart that sums up the answer to this question is Silver, with several momentum measures plotted below it. As you can see, Silver is right back to the all-time highs set back in 2011, which would be a very logical level for some consolidation to occur.
The momentum readings we're seeing support this view as well.

The first thing we have is the 14-day Relative Strength Index, which is not only registering one of its highest reading in history but is also beginning to diverge negatively as prices push to new all-time highs.

Next, we've got the 21-day (1-month) Rate of Change running at 45%, its highest reading in history!

And prices are currently more than 36% above their 200-day moving average, almost the highest in history. The only time it was higher (and only by a hair) was in 2011 before prices absolutely collapsed.

Do these scary stats suggest that a massive decline in Silver and Precious Metals is ahead? No, but it does suggest that owning Gold and Silver here is a bet that things that have never happened in history are more likely to continue than not.

We're not making that bet.

Instead, we're taking our massive profits from the last year of work and seeing how prices react to these current conditions.

There is absolutely no doubt that Precious Metals are in a bull market, but in the near-term, the reward/risk is NOT skewed in favor of the bulls.

So from a longer-term perspective, what conditions would need to exist for us to get long again? The weekly chart helps us identify those best.

1. Gold and Silver consolidate their gains below resistance at 56,840 and 73,900 over the next few weeks/months and then break out to new highs. At that point, we can buy the subsequent breakout and continuation of both long-term uptrends; OR
2. Gold and Silver correct through price and pull back towards support at 44,500 and 58,000 respectively. At that point, we can start building a position once again as prices approach those support levels.

Until either of those things happen, we want to be on the sidelines as current conditions do not favor being long for our timeframe. We've had great gains, now it's our job to protect them and wait for a more attractive reward/risk opportunity to present itself. Maybe that happens in a few weeks, maybe it takes longer, but this won't be our last time trading the Precious Metals' space on the long side...we can be sure of that.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team