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Precious Metals Turn Up

01/29/04 08:24:40 AM
by David Penn

Tick ups in the MACD histogram and upward "buy hooks" in the stochastic oscillator point to higher prices for silver and gold in the near-term.

Security:   GCJ4, SIH4
Position:   N/A

In a recent Advantage article ("The Euro Pullback," January 23, 2004), I suggested that the late-January strength in the greenback was likely to prove temporary. In the few days since that time, the dollar appears to have resumed its decent while "anti-dollar" vehicles like the euro and precious metals have stemmed their declines.

The action in precious metals has been particularly interesting. Gold, the most watched of the precious metals, has been in a short-term decline since a "shooting star" type of candlestick marked a top back in late December. Importantly, the decline in gold futures (basis April gold) has found support at the 50-day exponential moving average during January 2004. During this time both the stochastic (7, 10) and the MACD histogram moved into "oversold" territory.

Figure 1: Balancing on its 50-day EMA, April gold's stochastic and MACD histogram suggest an opportunity for higher prices.
Graphic provided by: eSignal.
If gold futures are to move higher, then this is the area in which smart money will begin to stake out its positions. As of Tuesday, January 27th the MACD histogram in April gold had ticked higher, and the stochastic oscillator had curled or "hooked" upwards. Both of these are bullish portents for gold.

Figure 2: While not as oversold as gold futures, March silver looks set to take on its January highs.

Silver is not nearly as oversold as gold (April gold's stochastic is at 30.61, while the fast line in March silver's stochastic is at 63.41). But silver appears to be almost as much an opportunity to the long side as gold. Silver has also seen its MACD histogram tick up most recently which, when a market is trading above its 50-day EMA, is often a strongly bullish signal.

While silver has also corrected from recent highs (silver topped out very early in January), the "junior" precious metal still has kept its distance from the support provided by its 50-day EMA. This, in and of itself, doesn't mean that silver must "close the gap," but it does suggest that silver could continue to correct before finding significant support (for example, at its 50-day EMA).

David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine,, and Advantage.

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Date: 02/05/04Rank: 3Comment: 

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