Showing posts with label silver prices. Show all posts

Friday, March 16, 2012

Technical Analysis | Gold and Silver

Gold and Silver Technical Analysis

In this gold and silver investment blog, Momentum Rider will be demonstrating a technical analysis pattern called an Inverse Head and Shoulders pattern. It is a bullish reversal pattern that occurs after a strong downtrend and it can produce a very powerful uptrend. Normally, the Inverse Head and Shoulders pattern is much smaller in time duration and in amplitude than the one we will be illustrating in gold and silver. But, as we explained in a previous blog on gold and silver, this pattern is part of a very large consolidation phase for the precious metals (see Gold and Silver To Shine Brightly in 2012). The gold and silver Inverse Head and Shoulders patterns will have significant upside energy because of their large size if they finally break out above their necklines. This will be explained in more depth later in the article.

First, it is worth spending some time telling you more information about what this pattern is. In addition, we will be using some specific examples that should prove useful for your understanding. The Inverse Head and Shoulders pattern is a chart pattern used in technical analysis that predicts the strong reversal of a downtrend. The Inverse H&S pattern is broken down into three smaller parts. Note that you may also see this pattern named an “Inverted Head and Shoulders” or a “Head and Shoulders Bottom”.

The first part of the pattern is where the price falls to a low or trough from a downtrend and then rises back up a percentage of the previous downtrend (left shoulder). The second part consists of a fall to a lower price than the first trough low and then another rise back up (head). The third part of the pattern is a fall from the uptrend from part 2 that does not go as low as the second trough or the head (right shoulder). The right shoulder low frequently doesn’t get as low as the left shoulder low. Finally, the rise from the third trough low takes it to a breakout line connecting the highs from the left shoulder and right shoulder (neckline). Typically the average volume in the shoulders is lower than average volume in the head phase. Two chart examples are shown below:

Example 1: Breakout Above the Neckline On Volume (Safer Entry With Pattern Confirmation)

There are two recommended ways to take advantage of the powerful Inverse Head and Shoulders pattern. The first is to identify the pattern early and to buy in the trough of the right shoulder. The second way is to wait for a high volume breakout of the neckline. Playing the breakout is generally a safer entry with full confirmation of the pattern. Buying in the right shoulder trough has more risk but it can be more profitable because of the lower price entry.

The chart below is an example of an Inverse Head and Shoulders pattern that Momentum Rider identified for subscribers in the middle of 2010. Obviously, it was very successful and profitable for us. It was part of a bottoming process for the S&P 500 similar to what gold and silver looks like right now. Note that this pattern is fairly deep and long in duration at about 4.5 months. That large depth and long duration helped to provide a very powerful move up that followed the breakout from the neckline.

Example 2: Breakout Above the Neckline a With Strong Run Up in 2010 for the S&P 500

Technical Analysis 2

Technical Analysis Charts – Consolidation and Energy Buildup Phase:

Momentum Rider has written numerous recent blogs supporting much higher prices for gold and silver in 2012 and for several years to come. In fact, we already explained the concept of consolidation phases and energy storage and buildup for bigger moves. Here is a quick snapshot of those previously published charts from our March 8th blog. This concept is important to understand because it supports our higher risk recommendation of accumulating in the right shoulder price areas without waiting for the neckline breakout on high volume.

Buying gold and silver right now does add risk to the trade because the right shoulder trough could breakdown. If the right shoulder price goes below the head’s low price, then the pattern is negated and the bigger move up in silver and gold may not happen as we anticipate.

Silver Energy Buildup Phase (Technical Analysis):

Gold Energy Buildup Phase (Technical Analysis):

Technical Analysis Charts – Inverse Head and Shoulders Pattern

Because of our fundamental and macro event premise that gold and silver will go higher in 2012 and for years to come, Momentum Rider believes that there is a bullish Inverse Head and Shoulders pattern forming in both gold and silver. Furthermore, for reasons that we discussed above and in our previous blogs on this subject, MR is recommending that you start accumulating gold and silver during this choppy period of consolidation in the right shoulder patterns right now.

Refer to the charts below for the recommended accumulation price range for your gold and silver buys. Also, you can add to your long positions after a breakout above the necklines as noted on the charts.

For gold, the accumulation range is between $1,585 and $1,740 with a neckline breakout level of $1,775.

For silver the accumulation range is between $29 and $34 with a neckline breakout level of $36.

MR recommends that you start accumulating gold and silver in the form of ETFs, mining stocks, coins, jewelry, or even bars if you have a good way of buying and storing the actual metal. But please be careful with any company you buy gold and silver from and those companies that claim they will store it for you.

Another parabolic move in silver and gold prices similar to what happened in 2010 and 2011 is very probable and it could be even bigger this time around. Using technical analysis studies and past experiences with large Inverse Head and Shoulders patterns in markets, the next moves up in gold and silver could start in April and the duration and size of the moves could be substantial.

The simplest and probably the safest method to accumulate gold and silver is to buy the ETFs. The Silver ETFs MR likes are SLV or SIVR and the Gold ETFs are GLD or IAU. Start buying in small amounts right now and on any pullbacks before the big momentum move really kicks in. Watch for Momentum Rider’s frequent updates on gold and silver prices in blogs and in the MR Power Stock Newsletters.

Keep learning more about technical analysis and look out for this very powerful Inverse Head and Shoulders pattern in the future. Take advantage of this investment opportunity in gold and silver as it could end up being one of the best things you could do for your retirement account in 2012.

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Monday, March 12, 2012

Gold and Silver Game Changers

Gold and Silver Investors in China and Asia

This article is going to provide information on some new mercantile exchanges for trading silver and gold that will explain why their creation could help skyrocket silver and gold prices in 2012. The emergence of these mercantile exchanges are truly going to be “game changers” in our opinion and the price escalation in precious metal prices could even start in the next few months.

New mercantile exchanges are getting started in China, Asia, and India and existing ones are gaining in popularity. The citizens in these countries have an insatiable appetite for gold and silver investing. Having easier access to local mercantile exchanges for their large institutions and individual investors is the key to why future silver and gold buying will explode.

For those of you that are unfamiliar with futures contracts trading, the king for many years has been the Chicago Mercantile Exchange (CME). They are still the top exchange for buying gold and silver futures contracts. They run the NYMEX which is the world’s largest physical commodity futures exchange. In addition, they control the COMEX which is the global exchange for copper, aluminum, silver, and gold. And, they run the CBOT for trading options and futures contracts on gold, silver, U.S. Treasury bonds, and energy and they even control the Dow Jones Industrial Average. The CME was the only game in town for big money players outside the United States. Investors had to trade in US dollars and they needed to obey the CME’s rules.

What that really means is that for many years China, Asia, and India were shut out from taking delivery of gold and silver unless they purchased contracts through the CME. And practically speaking, getting delivery from the US is not convenient.

Also, the huge fall in silver prices in late April of 2011 was brought about by a large number of successive margin call limit raises by the CME. This is easy to do in a non-competitive exchange world when you are the dominant player. As we explain later, adding very big exchange players in the gold and silver markets will probably curtail that type of ”artificial price fixing” from the CME. And without a momentum stopping action by the CME in a more competitive environment, the momentum buying from huge speculators in China and Asia could drive prices much higher than ever before.

Gold and Silver Game Changer #1 – Hong Kong Mercantile Exchange

The world of the CME being the dominant player in gold and silver futures trading is quickly changing. It has been slowly changing in recent years and it will change even more going forward. The Hong Kong Mercantile Exchange (HKME) recently opened and is now a major player in gold and silver futures contracts. The biggest difference is that it is the first time in history that the Chinese and Asian countries can purchase gold and silver futures’ contracts and actually take physical deliveries in Hong Kong.

Enabling much easier access to the physical precious metals to investors will most likely propel the HKME to become the dominant gold and silver gateway for all of China and Asia. No longer will China and Asia be at the mercy of the CME’s rules and the United States.

If you think that is not a huge market changing event for gold and silver then you would be dead wrong. Today, the Chinese are the biggest consumers of silver in the world and accounted for a mind boggling 25% of the global silver consumption last year. The silver demand rose 67% in 2010 in China alone. And this demand is expected in increase dramatically in the next few years.

In addition, not only can the Chinese and Asians take delivery of gold and silver locally but they can buy it in much smaller dollar increments. For those who want to trade gold and silver futures contracts on the new Hong Kong Mercantile Exchange, the buy-in is only a 1,000 troy ounce minimum. This is dramatically less than the current minimum contract from the CME of a 5,000 troy ounce minimum. That change alone will provide a huge advantage to smaller buyers. It should naturally increase the buying volume size and probably the total amount of silver and gold purchased. The larger volume purchases with more attractive buy-in parameters will put a strong upside pressure on gold and silver prices as the HKME gains momentum.

And, not surprisingly, the HKME has already signed up over 20 of the biggest brokerage trading firms in Asia. Those firms will undoubtedly create some huge volume buying in the near future, and that bigger buying is probably going to get going by the Summer of 2012.

The last silver squeeze, which Momentum Rider forecasted for subscribers, was started in mid 2010 and ended in late April of 2011 when silver prices went from $16 to $48. And that big short squeeze was without this new and powerful HKME. It could be even more staggering with new exchange buying pressures that could easily push silver to over $60.

Gold and Silver Game Changer #2 – Pan Asia Gold Exchange

The opening of Pan Asia Gold Exchange (PAGE) is scheduled to be in June 2012. This could literally take silver and gold prices to a triple from the current prices when buying momentum takes over. This is because in June, Chinese will be able to buy spot gold and futures contracts in their own Chinese currency. It will be the first time in history that the ruling currency will be used in speculative commodities like gold and silver. This is monumental in importance in terms of its positive affect on higher gold and silver prices. It could also be the start of the Chinese trying to undermine the US dollar in order to move their currency up the currency importance list.

You see PAGE will enable all 320 million retail customers and their 2.7 million corporate customers of the Agricultural Bank of China to use the Chinese money in their bank accounts to trade gold and silver. How significant is that? If just 2% of the Agricultural Bank of China customers buy 250 ounces of silver ($8,000 worth at $32/oz)), that would require 1.6 billion ounces of silver to come off the market. It would remove almost 10% of the yearly available silver amount open to worldwide investors. It is easy to see how fast the opening of PAGE could accelerate gold and silver prices upward.

It is all part of China’s five year plan to dominate global financial markets and the global economy. The PAGE also has the potential to eventually win the spot market for gold over London’s Metals Exchange and the Comex in New York.

The PAGE opening in June 2012 could conceivably force most short positions in gold and silver to cover before its buying power is unleashed. And the big institutional players will probably front run the opening which means that gold and silver prices will start going up well before PAGE opens in June. Based on our opinion, the PAGE’s future prospects almost guarantees a short squeeze and fast run up in prices that could rival the late 1970′s and early 1980′s.

Some are predicting the potential for $200 per ounce for silver and $5,000 and ounce for gold. That would not happen in the next few years but it is not out of the question by 2020.

Gold and Silver Investing

Here is the best and safest non-leveraged way to play this big move in gold and silver prices. We recommend buying the SLV, PSLV, or SIVR ETFs for silver and the IAU or GLD ETFs for gold. They track the spot prices one-for-one.

Of course there are also leveraged ETFs that can traded when the momentum heats up and you can buy gold and silver miners, you can buy coins, and futures contracts and options are also something to consider.

Leveraged Silver ETFs: AGQ (2X); USLV (3X) – these decay mathematically as investments so holding them long term is not advisable – used for trading

Leverage Gold ETFs: DGP (2X); UGL (2X); UGLD (3X) - these decay mathematically as investments so holding them long term is not advisable – used for trading

Another parabolic move in silver and gold prices similar to what happened in 2010 and 2011 is very probable and it could be even bigger this time around. The opening of some new exchanges are truly game changers for the gold and silver prices and for investors.

Start buying in small amounts right now and on any pullbacks before the big momentum move really kicks in. Watch for Momentum Rider’s frequent updates on gold and silver prices in blogs and in the MR Power Stock Newsletters.

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Good luck in your trading and investing,

Keith Hugenberg

CEO Jalexa Trading Consultants, LLC

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World Macro Trends Driving Gold and Silver Prices Higher

Gold and Silver Prices Going Higher

This is the second blog in our investor series focus on silver and gold. The first blog was on the technical analysis reasons of why gold and silver are poised to move much higher in 2012. This article will concentrate on the ten macro-trend drivers and fundamental reasons for supporting our claims that gold prices and silver prices will move much higher over the next few years and beyond.

Reason #1: Silver is used in coin money and is acting more like a real currency.

Silver has been used in coins for thousands of years. Both the sales of Silver Eagle Bullion coins and the general coin fabrication as measured in millions of ounces of silver has been growing exponentially since 2006. Further upward pressure from both collectors and those using silver in coin fabrication will continue.

In fact, just recently, China announced the production of a record eight million 2012 Silver Panda coins. And, China and their citizens have an insatiable appetite for both gold and silver. Some previously issued China Silver Panda coins now command huge premiums in the marketplace. It is a craze that will only increase in popularity and it will definitely drive up the underlying silver prices.

Reason #2: Silver is very cheap at its current $32 level based on both an inflation adjusted basis as well as measured by the Gold to Silver Ratio.

Remember that silver reached over $90 in the 1980′s on an inflation adjusted basis. Furthermore, silver measured against the historic Gold to Silver Ratio (GS) is significantly undervalued. The typical GS ratio in modern times has been around 15. The ratio right now is about 52. We also know that silver will do the majority of the price movement to close this ratio based on its higher beta.

So it is not out of the question, as both silver and gold move up in price, that silver could hit $60/ounce or even $90/ounce over the next 2 to 5 years. For example, $2400/oz for gold would put silver at $160/oz to get a 15 GS ratio. It is also worth noting that since gold’s peak in 1980, gold’s up only 65%, while inflation is up 175% and stocks have gained 900%.

Reason #3: The silver supply is actually disappearing much faster than gold as it is actually used in industrial applications.

Some would argue that it will become even more scarce than gold in the future. Unlike gold that is stockpiled by countries and also preserved in jewelry, etc., silver is generally not and it is also used extensively in industrial applications for electronics. That means that a large amount of it is being heavily used and then discarded and not being safeguarded or preserved.

So the silver supply is quickly vanishing and the industrial uses remove that supply forever unless it is somehow recycled. That is not the current practice with expiring and older electronics. They are moved to the trash heaps of the world and that silver is most likely gone for good.

Reason #4: Both gold and silver are moving off the open markets at a very fast rate and into the hands of private investors which reduces the available supply.

The open market or public supply of gold and silver is dwindling at an alarmingly fast rate. Even the US government has a difficult time finding silver to use for making coins. A recent estimate shows declines from 1800 million ounces in the open market in the early 1990′s to what is now about 600 million ounces of silver available. In addition, there are estimates that private investors now hold over 90% of the world supply which will increase even more in the next few years.

People in India, Asia, and China are continuing to buy and store their own gold and silver and China citizens are actually being encouraged to do so. China is a huge wildcard driver in this market and that is going to change dramatically with the new mercantile exchanges coming.

Reason #5: Inflation will become a much bigger issue in the next few years and beyond. This will put significant upside pressure on gold and silver prices as it did in the late 1970’s and 1980’s.

This reason alone supports a minimum move of gold to over $2,600 and silver over $60 once inflation starts kicking in. Those are very conservative estimates based on what happened in the late 1970′s.

Reason #6: Individual investors and numerous countries are accumulating and stockpiling gold and silver.

Gold is a safe haven in times of wars and political and economic uncertainty. This is the world we live in. Countries have been increasing their gold reserves and stockpiles by large amounts (China, India, and Russia to name just a few).

For example, in October 2009, India purchased 200 tons of IMF gold. This was the single largest purchase of gold by a central bank in the past 30 years. This need and desire to buy gold and silver by countries will dramatically push the prices up and their purchases are likely going to increase in the coming years. Again, less supply and higher demand equals much higher prices ahead.

Reason #7: Individual investors in China are being encouraged to buy gold and silver as investments.

In the past, the Chinese government forbade ownership of all precious metals. But now, the ban has been lifted. China recently introduced silver and gold bars for investment. The state-run China Central Television (CCTV) is running a campaign encouraging the population to invest in gold and silver.

That means there are over a billion potential new silver and gold investors ready to stockpile their own reserves. This is especially significant when you consider the average savings rate in China is 30 to 40%.

This increased demand could significantly affect the supply and drive up gold prices and silver prices. MR will amplify on this point in our third blog in this series as some new mercantile exchanges are getting ready to open.

Reason #8: The fast growth of the emerging market middle classes and their huge demand for electronics, technology, and jewelry will put heavier demands on both silver and gold.

Silver is used extensively in electronics and it will continue be used extensively going forward. It is simply a superior conductor and ideal for small electronics. The middle class is buying more and more gold and silver jewelry as their incomes allow throughout Asia, China, and India especially. It is simple. Middle class growth means more money to spend on higher ticket items that ultimately include silver and gold.

Reason #9: Decades of very low precious metal prices stalled and postponed production and exploration that have significantly lowered gold and silver supplies worldwide.

New gold and silver locations are limited and production is still not what it used to be and probably never will be again. Furthermore, the relative cost of finding new precious metals through exploration is extremely high in today’s economy. A barrier to new finds and production will strip the current supply in due time.

Reason #10: The emergence of the gold and silver ETFs have changed the supply curves of precious metals in the world.

The ETFs are backed by real gold and silver bullion that must be purchased. Therefore, momentum in the ETFs as an investment actually lowers supply which will continue to put upward pressure on the prices. And, they seem to be adding more precious metal ETFs all the time which will make this affect even more dramatic in upward price movements going forward.

In addition, these ETFs are now becoming the momentum vehicle of choice for very big trading institutions. This was clear on the silver price run-up of almost 200% from mid 2010 to the Spring of 2011. The automated programs and momentum traders are plentiful now and that will once again help spur on another huge momentum move up. This year could see another big move that these momentum traders play a big role in.

In conclusion these ten macrotrends and fundamental forces in the world economy today will drive the prices of gold and silver much higher in the future. Smart investors need to recognize that these powerful drivers and economic factors are already in motion. The gold and silver prices could start rising sharply in the next several months and probably will trend higher in 2012 and for years to come.

And for proof that Momentum Rider has a track record of market timing in silver and gold, you can read our blog on the last big “breakout call” written on August 24, 2010. It was literally only a day before the 200% move up in silver started. (click here to read). That doesn’t mean that this call is to the day or even week but it could happen soon.

Another parabolic move in silver and gold prices similar to what happened in 2010 and 2011 is very probable and it could be even bigger this time around.

The simplest method is to simply buy the ETFs. Silver ETFS we like are SLV or SIVR and Gold is GLD or IAU. Start buying in small amounts right now and on any pullbacks before the big momentum move really kicks in. Watch for Momentum Rider’s frequent updates on gold and silver prices in blogs and in the MR Power Stock Newsletters.