Gold Bugs Strike Back

Buyers drove home their precious metals stance for a second week.

Gold and silver posted wide-bodied bars, rocketing higher on the open and closing near the day’s peaks. 

Bullish momentum thrusts like these tend to spark sustained rallies.

That’s right!

It could be off to the races for these shiny rocks, especially given the crucial levels recovered last Friday…

Gold futures ripped higher, gaining more than 3% Friday while reclaiming a critical area of former support at approximately 1,910:

Buyers stepped in, answering the call to adventure and promptly repairing the damage.

The path of least resistance now leads toward former all-time highs.

Are we witnessing a classic failed breakdown in gold?

Can it be that simple?

Absolutely.

I’m tracking a swift move in the opposite direction (higher), much like the dollar’s bounce this summer, to indicate a legitimate bullish reversal.

The former 2011 high – marking gold’s previous commodity supercycle peak – represents my line in the sand.

Gold and other precious metals deserve the benefit of the doubt as long as gold holds above those former highs. 

Silver enjoying quite the bounce last Friday helps the bullish case for gold.

Here’s silver recapturing a similar former support level at approximately 22.20:

It’s always a good sign when the high beta areas of the market respond well during a rally.

That’s silver. And it closed last week out with a bang, up more than 4% last Friday.

I imagine that the numerous trade ideas in today’s call will bounce off their respective lows if silver catches up to 26.50.

The 22.20 level is crucial. But so is the 22.80 level in the front-month silver contract (December):

I want to see a decisive close above 22.80 in the December contract before flipping the book long toward the year-to-date highs.

To be clear, that’s what I’ll do if and when we get it.

Perhaps last week’s moves in gold and silver are an iteration of your everyday pullback.

In that case, the bullish action in gold won’t hold up. Instead of new all-time highs, we’ll likely witness a slow sideways grind lower.

I’m leaning in the sideways-to-lower direction despite the near-term bullish action based on the broader intermarket landscape.

Bigger picture: The US dollar and interest rates continue to rise.

If these trends remain intact, gold and silver will face show-stopping pressure, regardless of what the headlines read.

Precious metal bulls failed to convince Monday. But the coming days will present new opportunities for buyers to regain control or step aside.

Stay tuned.

Click here to watch this week’s Gold Rush Video:

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Allstarcharts Team