Commodities & Metals

Charting Silver Versus Gold... Dollar/Euro Reserve Currency Challenge (SLV, GLD, FXE)

We often look for a read on gold and silver and we have a potentially interesting development underway.  We track these via iShares Silver Trust (NYSE: SLV) and SPDR Gold Shares (NYSE: GLD), and the charts are giving two different reads around the 50-day moving average.  The gold trade is swinging wildly around headlines out of Europe, but silver appears to be at risk of seeing a return to normalcy and perhaps losing its name “The Devil’s Metal” if the most extreme read plays out.

We asked our technical affiliate Candlestick Forum for a chart reading on the crazy silver… The Devil’s Metal.  “Silver has slowly moved back up and just ran into resistance at the 50 day moving average. A Doji, followed by bearish confirmation at the 50 day moving average, indicates a wave three to the downside could take silver prices down into the $22 area if the run goes to the most extreme band. The 20 day moving average at the $33.25 level will be an important support level that needs to be breached for prices to move to much lower levels.”

While that call is only an “if, then” and offers only the most extreme band, the current silver price needs to be watched closely because there may be much larger downside price risks in the devil’s metal if it cannot recover from the current levels. Watch these moving averages…

Moving Avg: 20-day 50-day 200-day
SLV $33.14 $32.42 $33.92 $35.69
GLD $171.14 $166.81 $167.86 $153.37

Our own take is rather simple.  Gold is trying to find its footing again but it has an identity crisis.  It is not trading every day like a reserve currency now as international investors are choosing to buy dollars again on days when they get scared about sovereign risks in Europe.  Other days it trades like an equity-based asset class no different from cyclical stocks.  We expect a resolution over the next week or so to determine where gold is ultimately going.

Tracking the CurrencyShares Euro Trust (NYSE: FXE) is easy for the currency relationship between the Euro and the U.S. Dollar.  As far as the future of reserve currencies, our poll this week is now over but the indication is that the Euro in some form or fashion is toast.  Only 14% of our respondents answered “the Euro is here to stay as it is today” and the rest of the responses can be seen here.

If the Euro slides, it is going to be harder for gold to maintain that reserve currency status that it was exhibiting before.  It is hard to imagine that the dollar may be king again.


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