Monday, April 10, 2006

Gold and Silver

Here are hourly charts showing pit and electronic trading in June gold and May silver futures.

The contrast between these two markets is striking.

The last reaction in gold from f to g was much bigger in price than the preceeding reactions while the reaction from d to e was much longer in time than the preceeding reactions. This is a sign of technical weakness especially because the 598 level is the 2 3/8 multiple of the 252 low in 1999. This is a technical warning that the current rally is likely to end near resistance around 605 and will be followed by a drop below point g. This in turn would have more serious bearish implications.

No such weakness is visible in the silver chart. If anything the successive reactions within the uptrend have been getting shorter. Even so, the market is nearing very strong resistance near 1273, the 3 5/8 multiple of the 1991 low at 351. The steadily accelerating upmove in silver is a warning that the bubble is about to pop and when it does it will be difficult to get out of long positions on the way down.

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