Because the natural laws of supply and demand does not apply to gold and silver, the only way we can track the influence of endless paper supply on the market is through the most reliable source, the market itself, and the best way to track the market is through charts.
So writes Michael Noonan (edgetraderplus.com) in edited excerpts from his original article* entitled Gold And Silver – In East v West Gold War, Both Are Still Winning.
[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Noonan goes on to say in further edited excerpts:
(As an important aside, when we reference charts, we are not talking about traditional technical analysis that uses artificial tools like moving averages, RSI, endless broken trend lines, Bollinger Bands, whatever. Instead, we apply the most important factors that best capture market activity: price and volume.)
Gold – Annual, Quarterly & Monthly Charts
The Annual and Quarterly charts (A & Q on the left hand side) below for gold suggest a lower low is more than likely. One does not have to happen, but odds favor at least a nominal lower low in 2014. The Quarterly chart looks bottom heavy for the past 3 Qtrs, and the last Qtr shows a lower high, lower low, and lower close.
The monthly chart, on the right side, shows a labored decline over the past 5 months, and the last 6 months have all been inside June’s wide range. We often mention how a wide range bar will often contain subsequent bars, for whatever time frame, this one monthly. The lower end close for December also increased the probability of a lower low, next month, January.
Here are two separate forms of market activity that provide for reasonable expectations into the future, not predictions, but expectations.
- The wide range bar of June was the market telling us to expect price containment over the next several months, and that is what developed for the past half-year. There was also a wide range bar in April, when a similar supply of paper contracts was dumped onto the market, just as happened in June. Price was contained for only 1 month, but the trend carried the market lower.
- The location of the close on the Annual, the Quarterly, and the monthly all indicated a higher degree of probability for a lower low
in the next time period. With this information, one would know not to be in a hurry to establish a long position in futures because a lower price was likely.
It does not matter what the fundamentals say. The market is providing a clue or clues in what to expect. It may not always happen, but we are dealing in probabilities that tend to be fairly consistent.
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Gold – Weekly Chart[As can be seen in the chart below] price did make a nominal low on the weekly, and it held the support area established in June. With the close located in the middle of the down channel, while the price of gold can still rally, it is unlikely to break upside, at this juncture.
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Gold – Daily Chart[As can be seen in the daily chart for gold below] the down channel has been broken but of all the time frames discussed, the higher time frames are more controlling than the daily. It could turn out that the daily activity will lead to change on the weekly, then from weekly to monthly, etc, but what we know most about market trends is that they take time to change direction.
Friday’s bar was the smallest of the last three rally bars, and that tells us demand has weakened. With the location of the close near high-end on the bar, sellers were weaker than buyers. What needs to be watched closely, next week, is how price reacts on any pullback.
- If the bars are wide range lower on increased volume, expect more continuation to the downside.
- If the bars are relatively narrow in range and volume is less, then we have a stronger indication to expect the pullback to be brief and lead to another rally attempt.
We do not have to know ahead of time, nor do we need to predict. Instead, knowing how price and volume could develop, day by day, we just need to be prepared for how price may develop, and react accordingly. The market will give us the information needed on what to expect.
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Silver is a slightly different story, according to the charts.
Silver – Annual, Quarterly & Monthly Charts
It would not be unreasonable to expect a lower low from the annual chart (A) as shown on the right hand side of the monthly chart below. As shown in the quarterly chart (Qtr.) also below on the right hand side, the last Quarter in 2013 was the smallest range in the past 4 years. What matters is where it appears: at the lower end of the correction. The reason why the range is small is due to lack of sellers, combined with buyers meeting the effort of sellers sufficiently to prevent the range from extending lower. It does not preclude a lower low, next Quarter, but a rally could occur first.
The monthly chart below shows how labored the decline was relative to the wide range August rally. Here, again, we see a wide range that contained the price activity for the next several bars. December was a small range, letting us know, just like the Quarterly, that selling was weak, and buyers were meeting the effort of the sellers. The buyers were able to keep the range from extending lower, and also to close just slightly above November.
The trend has not changed, but we are seeing little pieces of information that alert us to potential change. The trend being down, and combined with bearish spacing, we know that silver has a lot of overhear resistance that will likely stop initial rally efforts from current levels. Until price moves out of the box, up or down, the TR remains intact.
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Silver – Weekly Chart
Last week’s reversal from lows, with a strong close, did not rally much above the previous week’s close. This is a small red flag that the rally could be meeting resistance.
There is a cluster of closes over the last 7 weeks. This signals either continuation lower or a reversal of the immediate trend. Until price rallies and closes above the high of the box or declines and closes under, there is no confirmation to be positioned, either way.
In the first box [to the left in the chart above] it looked like price would rally higher toward the end of October. Price gapped lower, instead, and created a lower box TR, the current one. This is why we said there needs to be confirmation, even though the weekly close in the above chart “appears” as though the rally will continue.
Silver – Daily Chart
The daily chart, below, is an example of why one needs to wait and let the market be the best guide, eliminating guesswork and having to predict.
The conclusion we reach from the gold and silver charts is that price may be forming a bottom, but it will take more time before a change will take place, and that could take weeks, months, even Quarters.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
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Recent Noonan Articles:
1. Noonan: “Gold Ain’t Going Higher – At Least For the Short Term” – and Here’s Why
Does the fast-fading world reserve currency [the USD] look like it is collapsing? A look at the performance of the U.S. Dollar Index does not suggest that it is, weak as it is. If the fiat dollar is not in danger of imminent “collapse,” or even breaking down, then gold does not have this event as an impetus for rallying higher. [Frankly speaking,] until that changes, gold ain’t going higher, at least in the short term. Read More »
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The demand for silver has grown exponentially in the past few years (record sales for American Eagle coins, record buying in India), but supply, on the other hand, keeps diminishing…Whenever there is a situation where demand rises sharply, while supply commensurately declines, it is a recipe for higher prices, and usually, much higher prices. This is true, unless one is talking about the silver market…[which] is at its lowest levels in the past three years. With talk of silver going anywhere from $150 to $500 higher, it currently struggles to hold $20. Why is this so? Read More »