Major market themes have not changed much during the first week or so of the new year. One of those songs that remains the same is the ongoing struggle in precious metals. Even though precious metals continue to be a place we want to avoid, data relentlessly rolls in offering insight.
The key takeaway from recent data is that we have an area of overhead resistance that is gaining validity with each new reversal of price action.
Let's dive in to the charts of Gold and Silver, pinpoint these areas of resistance, and make note of the psychology and price memory shaping these levels.
I wrote in the most recent Weekly Report,
"The chart of Gold presents a possible H&S continuation pattern that is in the process
of developing a right shoulder. When momentum bounced off of oversold readings in
March, it consolidated along with price before moving higher. Could we see a similar
pattern unfold over the next couple months? "
I believe the situation described above is absolutely possible, but more importantly price action in Gold ran into an area of overhead supply and quickly reversed last week. This produced a solid horizontal boundary around 1950.00. It's important to note that 1950.00 is well below the all-time high of 2089.20.
Why isn't this major area of overhead supply at the recent all-time highs?
It simply comes down to the overwhelming amount of price memory at these lower levels. Price peaked in early August after a near-vertical ascent for three weeks. Not many market participants transacted near the highs due to the fleeting nature of those levels.
However, far more transactions took place below those levels, and it appears investors remember when they wished they had exited their long positions. Notice how the developing resistance zone at 1950.00 occurs near the highs of the breakdown in September.
That's not a coincidence.
However price action unfolds, we want to have our eyes on that 1950.00 level, not all-time highs, to aid us in measuring risk and managing a future breakout in Gold.
It's almost an identical situation in Silver, with the exception that Silver is nowhere near all-time highs and has plenty of historical price action above. Regardless, notice how many times the 27.80 - 28.00 zone has been tested. There was a lot of price memory there from the consolidation in August and September, and that is exactly where it ran into resistance last week.
In terms of identifying a breakout, we can now focus on the 27.80 - 28.00 level, not the recent highs around 29.50 - 30.00.
So until demand can overcome supply, and the desire to unload positions around 1950.00 is satiated, we want nothing to do with Gold. The same can be said for Silver around the 27.80 - 28.00 level.
The current environment doesn't bode well for higher prices in precious metals. Investors are rewarded for owning other assets, mainly Stocks and other Commodities.
Even though this is the case, the charts of Gold and Silver are providing valuable information, and that's an important development we need to note.
Thanks for reading! If you have any questions or comments, please feel free to contact me at ianculley@culleycharts.com
DISCLAIMER: All information and opinions expressed by Culley Charts are strictly that, and should not be construed as investment advice. Market participation comes with inherent risk, and the responsibility of managing this risk lies solely with each individual investor.
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