Will Gold Break Through Its Double Top?

February 16, 2011 | By | Reply More

First things first, we hope that our recent, and often repeated, advice not to go short gold and silver has been taken, we really do not want our readers to have burnt their fingers. Both metals are making good headway, the question now is when will be the best time to buy gold and silver to build up a defense against the accelerating advances of inflation?

So the second point we would make in our readers interests is why we think that it is unwise to top up your your holdings right now unless you do not mind losing a few dollars now in the interests of a longer term substantial gain.

Today we are looking at gold making a double top in the last month at around $1380 an ounce. Even with our reservations about the merits of technical trading, in the short term certain historical patterns and conclusions should not be ignored.

Buying at or around the price of, or not far under the double top generally results in a loss, more certainly in the short term. We will wait until the $1380 resistance is well and truly broken before buying. As we write (12.08 EST) the price is hovering just above $1380, we want to see a steady breakthrough as a signal that the next phase of the gold bull run is under way.

We do not think that we are likely to see gold drop back down to the earlier circa $1340 support level but the double top could portend such a move, so be patient and very wary.

Silver, on the other hand, has had no such problems, double tops have not come into the reckoning. Since the first week of the last month the price of silver has consistantly moved up and is now just a few cents off $31 an ounce, just below its high for the last twelve months.

We think that silver will make circa $34 an ounce before the end of the year but appreciate that it is much more volatile than gold. If gold tanks, their is every probability that silver will follow suit, but at twice or more the rate. Now silver, the metal that normally follows on the coat tails of gold is indicating the next phase of their bull market, and in this situation, it would not be illogical to presume that silver is telling us that gold is a buy.

If that gold double top is not substantially breached then we would look to taking our very substantial profits on our silver ETFs, SLV options, Silver Wheaton (SLW), Stillwater Mining (SWC) and other miners that we have talked about in the past in the expectation that we will be able to get back in at a lower price, bearing in mind the volatility situation.

Our gold and associated holdings we will hang on to through thick and thin Just grateful that it looks like all those weak gold hands look as if they have been shaken out.

However never forget that Mr Market dictates and is there to catch us out. Right now their is a lot of money to be made playing the gold and silver sector but it will need watching like a hawk. Good luck to us all and long may it continue.

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