Metals (Silver and Gold) Strong Bounce
SILVER: In our last Blog “Metals (Silver and Gold) looking Interesting dated June 3 we were considering an opportunity in Silver and Gold. Silver long candidate – scale in between the $15.50 and $16 support zone. SI appears to be completing a long-term bottoming process. In May it broke through the $16 resistance level on a strong surge and on a pick-up in volume. It has now pulled back to test this neckline level possibly setting up the right shoulder of in inverse Head and Shoulders pattern. We need for it to hold above the $15 level which also coincides with the 200 day moving average (red line). If this $15-16 support zone does not hold then the likelihood of further downside comes into play. We were looking to enter long into silver and we did.
SILVER UPDATE – Silver had a strong surge after holding the support zone mentioned on 6/2/16. It is now approaching the top of its new range with neckline resistance at $18. A break above this level on increased volume will likely see a measured move to $20.
Nevertheless, investment opportunities still exist in specific commodities and to that end, we continue to hold an above-average allocation in cash, exercise patience, and look for opportunities to present themselves.
GOLD: Like silver, gold was making a legitimate attempt at a bottoming process. Earlier this year it broke a multi-year downtrend and in now retesting this breakout level which has now become support. We would like to see it hold above the $1150-1200 support zone level. If this level does not hold then the bottoming pattern becomes unlikely with a retest of multi-year lows coming into play. Upside confirmation comes in with a break above $1310 on a weekly close. We were looking to enter long into gold and we did.
GOLD UPDATE – Gold also saw a quick and steep rally after finding support at the $1200 level. Like silver, gold still needs to clear May 2016 pivot high and neckline resistance around $1310 to confirm a new uptrend. On the downside, the $1200 level now becomes a much more important level for bulls to defend.
TRADING UPDATE: Investment opportunities still exist in the commodity markets and to that end, we continue to hold an above-average allocation in cash, exercise patience, and look for opportunities to present themselves. As mentioned in the past, we are not seeing clear indications of what areas of the market may lead in a recovery, so we continue with a bottom-up approach to security selection. The cash can be put to work quickly should we see opportunities present themselves and the potential for hedge positions will remain a trading tool to improve risk exposure in the portfolios.