Sector Wide Technical Analysis - Gold, Silver, Oil, USD, Copper
The following is an excerpt from the technical analysis portion of the monthly Resource Fortunes Premium Newsletter publication, available in its entirety for subscribers at www.resourcefortunes.com. Please visit our homepage to sign-up for our free newsletter as well as download a free sample issue of our Premium Newsletter.
All charts current as of the close on Friday, November 2nd, courtesy of Stockcharts.com.
The Gold-Silver ratio chart is showing a rather interesting picture.
After a gradual decline of the ratio from the early 1990's to the late 1990's, perhaps having a lot to do with Warren Buffet's purchase in 1997, we can see that Gold gained the upper hand until about mid-2003 when Silver took over once again.
This action resulted in the formation of a huge Head-Shoulder pattern with the neckline around the 46 level. A breach of the neckline to the downside triggers a price target of 12, the distance of the neckline to the head (46-80). A ratio of 12 is just below the long term average ratio of 15!
Although we have to consider that this is a monthly chart, meaning the predicted decline will take a fair amount of time, the potential for Silver in the coming years is made very clear.
As we expected last month, the brief consolidation around the $740 level was enough to cool things down a bit and get Gold back into shape for another boost higher.
Because we are now in "uncharted" territory, it is difficult to pinpoint resistance and price targets for this current move, unless of course we look at the way back to the highs made in the early eighties. To get a bit of a grip on things, a magenta channel is plotted into the chart to see where this move could take us. It appears likely that we could touch the upper line of this channel around the $820 level, but that when we do, the chart will most likely be overheated. This could then lead to a possible decline or correction, taking us as far back as $740 and/or the 50 d. MA.
Silver is still lagging the advance of Gold, and it hasn't yet even reached the highs it made back in February/March of last year, though it is very close.
Silver made it past the first resistance zone and the expectations are justified that we will take on the last hurdle very soon. If Silver manages to break above the prior high, chances are excellent that Silver will get an extra boost and will charge ahead at a fierce pace.
This expectation fits perfectly with the chart of the Gold-Silver ratio presented earlier, but perhaps this is just the wishful thinking of a Silver bull.
Oil didn't disappoint us either. The expectation of higher prices after a short consolidation came to pass, and Oil rushed higher in a hurry even charging well into the nineties.
The $100 mark that we mentioned in an earlier issue is well within reach, but if oil does ascend to such great heights, what comes next?
Because the $100 level is an important psychological level, we would expect a round of profit taking and a much needed correction in the chart, allowing the indicators to cool down.
It would probably be wise for the bulls to pocket some profits between the current level and the $100 mark, and then wait for the inevitable correction.
Last month it was noted that any possible bounce in the dollar would be short lived and the decline would once again resume its course.
The 14 and 50 d. MA are still firmly declining and the weakness of the dollar against the other currencies of the world is very clear. Although much lower levels are expected in the long run, it seems that an interim bottom is about to be reached, especially given some visible divergences in the chart.
A bounce back to the 80 level would round up a back test of the huge Head-Shoulders pattern that was presented in our update several months ago. After a successful back test, the way would definitely be clear for new lows.
Last month we hoped for a break of the 380 level to get confirmation that the correction was over, but instead, this resistance level held firm and pushed Copper back towards the red trend line.
Although the picture is still positive, there are some negative factors creeping into the chart. Copper fell below the 14 and 50 d. MA, and the former MA is about to produce a negative cross with the latter, triggering a longer term sell signal.
All is not lost at this point, but the red line must support the price and function as a springboard to get Copper back above the MA's and the first resistance at 350.