Technical Analysis: This Is A Big Week For Gold And Silver!

| May 20, 2013 | 2 Comments

precious metalsThis is a big week for precious metals…

Why?

Numerous Federal Reserve board members are going in front of the microphone over the next few days to discuss the US economy.  First of all, Chicago Fed President Charles Evans speaks in Chicago later today.  But more importantly, Fed Chairman Ben Bernanke goes before Congress on Wednesday.  

What’s the big deal about a couple of speeches?

Well, Mr. Bernanke and Mr. Evans will likely hint at the Fed’s monetary game plan for the rest of 2013.  As you may know, there are rumors circulating the Fed is ready to start winding down their quantitative easing (QE) program.

What’s more, investors will get additional hints at the Fed’s next move when FOMC meeting minutes are released after Bernanke’s speech.  As you may know, FOMC minutes are highly regarded by investors.  They reveal everything Fed members discussed at the last meeting.

What does all this have to do with gold and silver?

Like I mentioned in last Friday’s article, the US Dollar plays a huge role in commodity movements.  And without a doubt, the recent market rumors of the Fed winding down QE have sent the greenback soaring… and precious metals tumbling.

Take a look at gold…

Gold Chart

And silver…

Silver Chart

As you can see, gold is on the verge of breaking below April’s washout low at $1,350 (blue line).  What’s more, silver is already dropping below last months low at $22.50 (green line).

If Mr. Bernanke and Mr. Evans confirm market rumors that they’re ready to rein in QE, the dollar will likely keep rallying.  And that means precious metals may continue their downward spiral. 

In fact, if gold breaks below $1,350, I wouldn’t be surprised to see a drop to the $1,200 area by late June.  What’s more, silver may break below $20 for the first time since September 2010.

However…

If Bernanke hints at QE continuing through the end of the year, then we may see a big pullback for the dollar.  Of course, such a scenario would open up the possibility of a spectacular precious metals rally.

How can you capitalize on the situation?

You’ll have to be very nimble, but if the Fed hints at an end to QE, you’ll want to consider a position in the Powershares DB Gold Short ETN (DGZ).  DGZ has an inverse relationship to gold.  If the yellow metal falls, DGZ will rise.

On the other hand, if Bernanke suggests additional monetary easing through year-end, a position in the iShares Gold Trust (IAU) may perform well in coming months.  IAU tracks gold prices with a positive correlation.  In other words, if gold rises… so does IAU.

Until Next Time,

Justin Bennett

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Category: Gold, Silver, Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

Comments (2)

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  1. Justin Bennett says:

    Hi Harry, I’m doing a detailed technical analysis of the silver market next week. Check back then for a few ETF ideas. Thanks for reading!

  2. Harold H. says:

    You gave ETF plays on gold,
    What about silver?
    Harry

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