Go For The Gold?
Last week was a whopper for precious metal bulls. In case you’re unaware, gold and silver broke strongly higher in Thursday’s trading session. The yellow metal surged by just over $40 an ounce (3.3%), while silver added $0.85 (4.3%) on the day.
What sent the metals roaring higher?
Like I mentioned in last week’s article, gold and silver were poised for a big bullish move thanks to an important technical situation mixed with newly released inflation data.
Adding fuel to the bullish fire were dovish remarks from Janet Yellen…
In Thursday’s press conference, the Federal Reserve Chairwoman said “…unemployment remains elevated and underutilization in the labor market remains significant.”
And what does that mean in plain English?
The Fed is still concerned about the slack in the job market. While the unemployment rate has come down to 6.3%, it’s still higher than the Fed would like. As a result, monetary policy will remain accommodative for the foreseeable future.
But here’s where it gets interesting…
Precious metals investors yawned at Ms. Yellen’s Wednesday speech. Gold and silver ended the session flat.
However, Thursday was a different story…
Both metals started the session strong and accelerated higher throughout the day. At one point in mid-day trading, gold spiked strongly higher on enormous volume.
What caused the run up?
It’s likely that one or more hedge funds threw in the towel on their short gold position.
Ms. Yellen’s dovish statement, along with last week’s hot CPI reading, skewed the risk/reward out of their favor for being short gold. Not surprisingly, the yellow metal rose as they covered their short positions.
That’s all well and good.
But here’s the real question everyone is asking now…
Where do gold and silver go from here?
Let’s look to the charts for insight…
As bullish as last week’s rally may seem, gold isn’t out of the woods yet. As you can see in the top chart, the yellow metal is still trading under important long-term resistance (red line).
Gold must surpass the $1,350 area before bulls can really start getting excited.
But silver is a different story…
As you can see in the bottom chart, silver is already peeking above its long-term resistance trendline (red line). It’s also interesting to note that silver outperformed gold on a percentage basis on both Thursday and Friday.
What’s my point?
If you’re interested in playing this precious metals rally, look to silver. The metal is cheaper to own and has already surpassed important technical resistance milestones.
You can capitalize on further upside in gold and silver via the SPDR Gold Shares (GLD) and the ETFS Physical Silver Shares (SIVR).
Until Next Time,
Justin Bennett
Category: Gold, Precious Metals, Silver
