HAVE WE REACHED A SHORT TERM TOP IN GOLD AND SILVER ? / EQUITY MANAGEMENT ACADEMY

Have We Reached A Short Term Top In Gold And Silver?

September 23, 2012

Patrick MontesDeOca
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The reaction of the gold market after the last FOMC announcement was somewhat of a surprise. Most market participants were looking for an explosive upside move to follow through after the Fed's decision. Instead, the market might have gotten ahead of itself in anticipating and discounting the long awaited announcement from Mr. Bernanke regarding QE3. Currently, the price is consolidating and processing this information before the next big move from current levels.




Mr. Bernanke's monetary policies that make available $40 Billion monthly from the Federal Reserve to support the economy is at least a very ambiguous strategy. According to Mr. Bernanke, this policy is a no-end policy as long as economic indicators-- primarily the monthly unemployment numbers-- support the action by the Fed to act accordingly. In other words, if unemployment declines there is less likelihood for the Fed to continue printing more money. On the other hand, if unemployment gets worse, it increases the chances for the Fed to keep supplying and printing more money to the economy as needed. The big question is how real are the unemployment numbers published by the Fed compared to the real economy?




Conventional wisdom seems to indicate the Fed's decision to monitor the economy month to month seems to be another alternative to kick the can down a different road. The unemployment numbers are dim and gray with no job prospects in sight. Economic indicators are lagging, real estate numbers are below expectations and there is no definite plan of action to create jobs.




The zero base interest policy with the QE3 no-end stimulus package in place inevitably will only lead to inflation in the long term and potentially hyperinflation. Basic goods and services will get more expensive. Imports will continue to rise as the U.S. Dollar continues to lose its purchasing power as the world's reserve currency and precious metals will explode. The bond markets will collapse and demand a higher yield or interest rate to compensate for the risk factor in owning U.S. Government Bonds as inflation begins to reduce the integrity and value of its principal investments in U.S. Dollar denominated terms.




The gold market is indicating it has reached and completed a short term 61.8% Fibonacci retracement profit objective at 1787.50 as of Friday September 20, 2012. A weekly close above 1787.50 would confirm the next target objective at the September 2011 highs of 1945.37.




Let's take a look at the charts technical picture and see what it looks like over the near-term.
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            Click to enlarge.



The December (Comex) electronic gold contract closed at $1,775.4. The 52 week Range is: $1,535 - $1,934.6. The market closing above the daily 9, 18 and 36 day MA's on a weekly basis confirms the momentum is bullish and puts into perspective near-term the $1,900 target levels or the September 2011 highs of $1,934.6 per ounce.




The market closing above the VC Weekly Price Momentum Indicator of $1,767 is bullish. Look to take some profits if long as we reach the $1,776 and $1.785 and levels early in the week. If stops are taken out here, we could see a sharp rally up to the $1,800 to $1,825 levels weekly resistance levels.




Buy corrections at the $1,760 and $1,750 levels to cover shorts and go long on a weekly reversal stop. If long use the $1,750 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

                                      Click to enlarge.




The December (Comex) electronic silver contract closed at $34.68. The 52 week Range is: $26.20 - $40.72.




The market closing above the daily 9, 18 and 36 day MA's on a weekly basis confirms the momentum is bullish. The market closing above the VC Weekly Price Momentum Indicator of $34.53 is bullish. Look to take some profits if long as we reach the $34.95 and $35.21 levels early in the week. If stops are taken out here, we could see a sharp rally up to the $36.50 to $37.50 levels weekly resistance levels.




Buy corrections at the $34.27 and $33.85 levels to cover shorts and go long on a weekly reversal stop. If long use the $33.85 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).