Since the price plunge last month we’ve posted a couple of articles, one on gold and more recently one on silver. So we thought it time to revisit both to see how things have panned out, especially given the further sharp dive both metals took on Monday.
The top part of each chart shows the NZ dollar price for each precious metal. Whereas the bottom displays the price in the commonly quoted US dollar per ounce for comparison.
Looking at the gold chart above first, you can see that Monday’s tumble in Asian markets briefly brought the USD price of gold down close to its intraday lows of last month in the low $1300’s (Black candlesticks in bottom half of the chart). Whereas the sharp weakening of the kiwi dollar has dulled much of this recent drop, with the local gold price still some way off last months lows (see red candlesticks in top of chart).
Below is an updated long term chart of Gold in NZ dollars. We’ve added another line from when we first published this a few weeks back.
It’s the line with the 3 circles along it. These circles indicate the low of last month, the low in the middle of 2010 (support) and the high in 2008 (resistance). We still have a feeling we might at least retest this area below $1600 at some stage. But for now the weaker kiwi dollar means that it remains over $100 per ounce below where we are today.
Monday mornings massive and unusual plunge brought the US dollar price down close to $20 which was the high from back in 2008 – a.k.a “resistance”. This acted as “support” on Monday with the price reversing sharply earlier Tuesday and heading back up to where it finished last week. (It was unusual as it occurred during Asian markets not in US/UK trading as these plunges usually do.)
NZ dollar silver (red candlesticks in top half of chart below) was no different, on Monday very briefly getting down below $26 per ounce before staging a sharp comeback on Tuesday. So the local price and US dollar price were both briefly down below last months lows.
As we noted in our daily price alert on Monday the advantage to those looking to buy on Monday was that premiums (the mark-up above the spot price) for the likes of popular coins like Canadian Silver Maples have actually come back down quite sharply in the past week or so compared to what they were just after last months plunge. So Monday morning was a chance to buy silver cheaper than last month even, though it didn’t last long.
So this occurrence was in keeping with the “wedge formation” we featured Friday week ago and our comments that we thought “on average we could say a break down is more likely”. You can see in the chart below that after an initial “head fake” higher this is what occurred and NZ dollar silver headed lower.
Looking at the updated 10 year chart we featured Friday week ago, the intraday spike down on Monday day went briefly below the uptrend line labelled (1.). But the price is still above the $24 region shown by the horizontal support/resistance line with points a. and b. circled on it. As we said in the previous article this is likely to be strong support given it’s where the 2010 run up started from (circle b.).
We’re not convinced that we have reached capitulation point yet. Although of anecdotal interest was that Monday’s silver plunge didn’t bring about much buying for us, at least in comparison to last months initial drop when there was huge buying. There was also a dearth of interest or mention from the mainstream media on it.
But we just have a feeling there could be more weakness ahead yet for silver to shake the last of the “weak hands” out. If we look at the US dollar chart we can see that yesterday’s intraday plunge saw the $20 level come in as strong support. But we just have a feeling this level could be tested a bit in coming weeks we reckon. We can see the parabolic rise in 2010 began from the $17.50-$18.00 region so we reckon there may be a retracement right back to around there.
This would also mirror the “double bottom” that occurred in the RSI back in 2008. If this did occur it would be the most oversold the RSI has been during this bull market.
Well of course this depends on the NZD/USD cross rate, but would mean a dip down to at least the NZ$23-$24 region. This could happen fast but maybe it’s just as likely that we continue to grind lower from here for a bit yet. This “sand paper” action could be how silver bottoms out, just grinding lower rather than the sharp plunge and countervailing sharp rise that occurred in 2008.
Of course we don’t believe any of the fundamental reasons to buy have changed.
Then it comes down to making your decision as to when to take a position if you haven’t already done so. Picking the bottom will take a vast amount of luck, rather than any great skill, and what we’ve written here is more based on a hunch than anything technical, so there is no guarantee we will go lower from here. But as always we say don’t go “all in”, as much for psychological reasons as anything. It’s not nice to see prices fall but if you’ve got spare cash at least you can take a further position at the lower prices and get a better overall entry.
As already mentioned premiums on some imported products have actually come back down. Local silver remains at the same premium above spot as before last months dive in price and local gold is not too much different from a month ago either. So current prices to buy are not far off what they were at the lows of last month. If we get a further dip in prices it will be interesting to see if the buying returns en masse again and therefore we see premiums rise again.
Our hunch is that the bottom will arrive when there is very little buying interest (in the western hemisphere at least!).
What do you think? Is the bottom in for gold and silver or will they go lower from here? Do you think one is a better buy than the other currently? Show us you’re alive and leave a comment below!