Gold and silver prices exploding soon?

[caption id="attachment_1059" align="aligncenter" width="500" caption="Gold and Silver futures"]Gold and Silver futures[/caption]

Gold is about to break its 200 day MA at 850 and Silver is testing its long term triangle. This could get interesting...

Breaking out of a month-long trading range for gold and silver?

[caption id="attachment_741" align="aligncenter" width="500" caption="mini Gold and Silver"][mini Gold and Silver][][/caption]

Like the rest of the market, commodity traders have been going through some wild rides this year. If anything, their ride is significantly more thrilling because of the leverage.

Of all the commodities, Gold and Silver are my favourites. Even though I don't trade the futures market anymore, I still keep an eye on them. Furthermore, I have a vested interest in precious metals because of my exposure in SLW.

As I have noted last month, I am long term bullish on precious metals like every one else. Heck, I think it's a one in a life time investment opportunity. In times of crisis, hoard gold. And we are in as bad a crisis as ever. Investment opportunity doesn't get any more obvious that this. Yet, the reality is that we are in an obvious down trend since the price highs in July 15. Coincidentally, we are exactly 4 months after that peak today.

Yesterday's bounce of the market coincided with a reversal in the precious metal prices too. In fact, whereas today's market retraced a bit, the gold and silver prices continued higher. They are up 39 and 0.736 respectively to 743.50 and 9.54.

I must say, I am not as confident in analyzing commodity prices because I lack an edge in the futures market. I merely look at the price and the e-mini volumes. The e-mini's are just a small piece of the global precious metal market. There are the full-size futures, various exchanges around the world, the spot market, and what not. Then there's the non-trivial relation of gold to US\$ exchange rates, since gold is a world commodity but its price is based in the US dollar... and so on and so forth.

Anyway, I'll make do with what I have.

Looking at the gold and silver prices in the chart, we are still well within a trading range. Could this be a turning point for them too? I have no idea.

The way I play the gold and silver prices is simple -- I don't. I just follow them. Even though we have shot up 70 points in gold, I think it's too early to say if we're truly on the rise from here yet.

However, not that I'm just rambling here, I do have a point. I think observing the prices of gold and silver around that marked trendline around 757 and 10.3 will be the best indication yet. Since the wild swings of recent prices in gold and silver have been spinning my head, I think we are approaching a significant breakout.

[mini Gold and Silver]: http://traderpau.files.wordpress.com/2008/11/2008-11-14-ygyi.png

My Gold and Silver markets perspective, October 2008

The fundamental for \$1000+ Gold is certainly in place, like the free money handout that's been going on in many countries and the global financial panic. Conventional wisdom says in times of trouble, hoard as much gold as you can. I still believe Gold and Silver will break their previous highs from earlier this year.

Yet, I don't have a Swiss bank account to hoard physical gold nor have I got the financial means to even purchase mint-backed gold certificates. I am merely a small time trader on the market. One rule of the tradebook I learned by experience is that it's good to live by an independent perspective on the market, but don't die by it.

Looking at the gold and silver charts though, it is blatantly obvious that we're in a severe downtrend lately, for whatever reasons. The small rally this week may be tempting for some perma-bull or the fundamentalists. But I wouldn't enter the commodities market at this point without some price-volume confirmation.

Indeed, if we look at the gold chart. We see that the current rally is probably a retracement. It has tested its resistance at 780 and backed down already.

[caption id="attachment_537" align="aligncenter" width="500" caption="Gold"][Gold][][/caption]

Surprisingly, the silver camp is looking better. We are seeing a positive divergence in both the RSI and MACD in the latest down leg. This is caused by the more severe fall of silver since its high earlier. The silver down leg hasn't had a chance to catch a breath like gold has. In fact, I would watch for an upside break in Silver regardless of the move in Gold. I don't know would this be possible and sustainable, silver going up while gold going down.

[caption id="attachment_538" align="aligncenter" width="500" caption="Silver"][Silver][][/caption]

Sometimes it's easy to forget that gold and silver are two commodities with two different prices. That is because gold and silver price correlation is very high and have generally moved together for many fundamental reasons. However, there are periods of time when the Gold/Silver ratio make drastic changes.

The G/S ratio has been around 55 - 65 in the past 5 years. G/S ratio runs higher in times of trouble when people purchase gold as a safety shelter to store value. In the tech bubble, G/S went above 80 around 2003. The highest in the past 40 year occured after the 1987 crash, in 1990 when G/S got to 100.

[caption id="attachment_539" align="aligncenter" width="500" caption="Historical Gold/Silver Ratio (snatched from www.gold-eagle.com)"][Historical Gold/Silver Ratio][][/caption]

While the absolute price of Gold and Silver has been counter-intuitive, the G/S ratio picture still fits well with the norm. Notice the spike starting in August 2008? When the financial troubles we're in now is written all over the wall? (Actually, the writing on the wall appeared late last year already, but that's another story.) The faster fall of Silver lately could be explained with this. If that's the case, then both Gold and Silver could continue its downtrend.

[caption id="attachment_536" align="aligncenter" width="500" caption="Gold/Silver price ratio"][Gold/Silver price
ratio][][/caption]

So what's my point in this post? I don't really have one. I am just saying what's in my mind about Gold and Silver in this recent counter-intuitive trend. In terms of the prices, I am still bullish on gold and silver in the looong term. And definitely bearish in the short term. When will they move up? I don't know, just observe the market. But I see silver to have more upside if it were to go up. It could easily creep up to \$12 from here.

[Gold]: http://traderpau.files.wordpress.com/2008/10/2008-10-30-gold.jpg [Silver]: http://traderpau.files.wordpress.com/2008/10/2008-10-30-silver.jpg [Historical Gold/Silver Ratio]: http://traderpau.files.wordpress.com/2008/10/gsr-gm.gif [Gold/Silver price ratio]: http://traderpau.files.wordpress.com/2008/10/gold-silver.png

Dabbling in day trading again on this historic day

[caption id="attachment_334" align="aligncenter" width="500" caption="ES Setup"][ES Setup][][/caption]

I mentioned previously about avoiding volatility. But with VIX about 75 now, I couldn't help but to take the opportunity to day trade. I know, I know, I said I wouldn't do it again. So I'm only trading an account withpaper money.

To illustrate the abundance of day trading opportunities these days, I just launched my trading screen and within minutes I can see a viable setup.

On the 1 minute chart on the left, notice the small doji at \$844 with a high volume. Also off the chart is a low of \$837 for the day in the morning. So \$840 is an effective support for the moment. Since the doji at \$844 is above \$840, this is a good sign for the time being.

So I placed buy orders around \$845 for the next few minutes and exiting below \$850 (obvious resistance), with intent to get back later in if it breaks \$850 strongly. This went on for a few minutes, and I traded in the range taking small profits twice, until the price broke to \$841.50, which I stopped at a loss at around \$842.50.

However, noticing it's in a steady climb from then on, I entered a long at \$845 again, with stop at \$841, for a longer trade. The price rose to \$853.75, bounced back to \$850, and started dropping. I exited my long at a small profit at \$849.50 on a retracement.

ES keeps dropping for those seconds until \$845.75 and bounced right back to \$851. That was a good sign. I believe the initial \$850 break and retracement was just a technical bounce. So I went in again at \$851 a bit later intending to ride it up to \$860.

That trade went as planned and I exited at \$858. I reversed and went short at \$861 with a tight stop at \$863. The stop got hit and the price went up to \$866.

I decided to stop there since the trading screen didn't lean much to on-the-spot analysis. I'm not asking for a full charting screen though, that would be overkill for day trading. Simplicity is key. I'd be happy if they had 1-min and 15 min candlestick charts with 2-line EMA, MACD, Stochastic, and volume information. In the end, I'm \$162.50 richer in paper money after 12 trades.

Although it's a profitable session, I think I took way too many trades to reach that.

Since my trading platform is very basic and isn't meant for day trading, I didn't even have a chart on the trading matrix. I just looked at the price movements and occasionally flip back to the chart. However, I do have one good indicator for use... which is the price of Goldman Sachs (GS). Long story short, we're in a financial driven crisis and GS (along with MS and others) is one of the two surviving investment banks (of original 5) in this mess. GS were off the lows of the day and moving up very slowly throughout the few minutes which I day traded. That was a good enough bullish sign for me to go long.

[ES Setup]: http://traderpau.files.wordpress.com/2008/10/2008-10-10-es.png

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