Gold & Silver: One More Move Down?

Old trading wisdom was the title for the previous post "Buy Rumors, Sell Facts" played out the same day it was published on the Blog. The price of gold dropped close to 6% from the top of $1966, and the pride of silver suffered even more as it fell more than 9% from the peak of $26.

The real reason behind that strong sell-off was the news that Pfizer's early data showed the COVID-19 vaccine is more than 90% effective, which brightened the outlook for the global economy and triggered the run from the safe-havens. Although my call in the previous post was based on the simple trading logic and the chart structure knowledge, it came true. Thank you for your support with helpful and prophetic votes and comments.

Let's get down to update; I switched to a lower time frame of 4-hour to highlight the current consolidation in more detail.

4 - Hour Gold Chart

This time gold shows a clearer structure than silver as the former broke below the counter-trend consolidation valley at $1859. This validated the current leg down then.

The former peak established at $1966 this month allowed us to build the orange declining trend channel to contour the current complex correction. The recent severe drop marked as the first minor leg (i) of the third large leg down found support in the red dashed mid-channel area as price bounced up there. It was the first leg of a minor counter-trend consolidation (chocolate ellipse) and another one we witnessed at the end of the week. This structure has already retraced up to the 38.2% Fibonacci retracement level below the round number level of $1900. The price reversed down at this double resistance.

We got the first minor move down (i), the following structure looks like a consolidation to link the last drop with an upcoming minor move down marked as (ii) within the large leg 3. The price should then cross down both the mid-channel and the valley of leg 2, located in the same area of $1848.

If we apply the AB/CD segment principle, the move (ii) would target the pink box area between $1780 where (ii) = (i) and $1750 where (ii) = 1.272 x (i). The latter is very close to the downside of the trend channel.

After leg 3 will emerge, we could consider the reversal to the upside. The invalidation for the leg (ii) is only above the former top of $1966.

4 - Hour Chart Silver

Silver's price did not trigger the invalidation point to the upside located in the counter-trend correction valley following leg 2 at $22.57. That is why I said above that gold looks clearer these days, although the current structure emerges the same way.

Again, one thing was clear as price reversed right ahead of the trendline resistance of the orange downtrend. We had already observed the true power of trends on the silver chart when the leg 2 down was rejected, although it was quite strong.

We have the same sequence of the first minor move down (i) and the following consolidation (chocolate ellipse). The former is quite deep as it retraced half of the preceding hard drop, as the spike at the end of last week was sharp. This could be enough for the second minor move down (ii) to kick off. The market could struggle to bend this diehard metal down as there is quite a long distance to the minimum target of the valley of leg 2 at $21.67 and even in the mid-channel area of $22.6. Therefore, the channel's downside is out of our radar here, although we see it on the gold chart. To tag the bottom of leg 2, the second minor drop (ii) should run 1.272 of the first minor move down (i) as the equal distance is just not enough for that.

The invalidation point of $26 is closer on the silver chart than on the gold graph, and we should watch it closely.

Do you see another drop (ii) to complete leg 3 down in precious metals?

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Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

4 thoughts on “Gold & Silver: One More Move Down?

  1. I think the last leg down happened intraday today after the Moderna announcement. Both gold and silver recovered nicely, a lot better/faster than they did after the Pfizer announcement last Monday. A lot of spec longs have left the market, but will get in on a move up. Goldman Sachs reiterated $2,300 per oz. prediction (in 2021) just a few days ago. I view BTC as a "canary in the coal mine." Big runup in BTC in the last couple weeks. If BTC moves further, it's going to make gold look cheap, then you'll see those +$25 to $40 a day moves in gold again.

    1. Dear Ed, thank you very much for a regular and extended feedback.
      Corrective structures are tricky as they can emerge in different shapes and therefore it is rather too early to consider it to be completed although we saw the sharp drop on the day when this post was published. The price should retest the bottom of leg 2 at least or if this is already a reversal then we should see a strong move up followed by a declining or horizontal correction. None of this has happened yet. Let's wait and see.
      Bitcoin I think a hybrid instrument as it sometimes acts as safe haven and sometime it switches to Risk-On mode.
      It potentially could retest the all-time high close to $20k as I see the structure. And compare it with the gold trading already above all-time high in the correction.
      Good luck, Aibek

  2. Gold will break miner and major support levels wipe out all specks and rally to new highs when the stock market goes into a recession. at this time gold will be a safe heaven with less competition with rallying markets. investors need a place to put there money. a bear market gives them the opportunity, to use gold as a safe heaven with real value. i have been short gold 2 months now, the markets are trading in and out of sectors with no real sense of direction. Its going to be a wake up call. To many bullish investors ? gold needs less competition for a new contract high. happy trading its hard to micro manage theses markets.

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