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Gold and Silver Form Bearish Patterns

David Becker
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Gold and silver prices are in a downtrend but weekly price action is beginning to confirm a longer-term negative outlook. The weekly bars show the spot silver price falling back toward its lows of the last year. Silver’s chart pattern over the last year resembles a “descending triangle” which is a bearish pattern. Silver remains in a major downtrend that started three years ago. The trend of spot gold isn’t much better. Gold also appears to be triangulating between two trendlines. Triangles in a downtrend are usually bearish, as they reflect a continuation pattern that will likely accelerate to the downside. There are also intermarket forces working against gold.

One of the intermarket influences hurting gold is the bouncing dollar, which has benefited from the falling Euro. The peak in gold in mid-2011 coinciding with a major upturn in the Dollar Index. Another USD bounce in autumn 2012 pushed gold lower. A weaker dollar over the last year helped support a rebound in gold. The recent ability of the dollar, however, to bounce off an important support line has caused gold to weaken. Gold has a tendency to trend in the same direction of the Euro. That’s another reason for gold traders to watch the ECB announcement this week, and how the Euro reacts to it.

Rising stock prices also hurt gold. Gold did especially well between 2000 and 2010. However, falling gold prices since 2011 coinciding with rising stock prices. Gold prices fell especially hard in spring 2013 after the S&P 500 hit a record high. One factor that usually works in gold’s favor is falling bond yields. Since gold is a non-yielding asset, it does better when yields are low. It appears, however, that rising stocks prices are having more of a negative effect on gold than the beneficial effect of falling yields.

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