Silver & Gold Both Become The Devil's Metal... Is Chart Support Near? (GLD, SLV, ABX, GDX, SLW)

There is no point in arguing about it.  Gold and silver are just the wrong trades in the current state of the markets.  Hope may be near for support, but there are risks to having too much conviction behind that hope.  Most investors are currently blaming the fears that Bernanke and friends are no longer going to invent ways to add quantitative easing measures any longer beyond operation twist as it expires.  Despite a personal rant yesterday calling for an end to all of these easing measures, the current state of the policies will still likely be accommodative for quite some time even if the FOMC does not invent any new easing measures.

The charts have turned ugly for gold and silver and it bleeds right back to what Carter Worth of Oppenheimer said in mid-March about gold going back to $1,500.00.  Our take is that gold is currently suffering from identity crisis: it is not an inflationary nor a dollar hedge, nor is it proving to be the risk-on asset that investors, traders and speculators had been hoping it was.

Today’s prices on gold and silver matter if you are a pure chartist.  If the prices fail to hold here, gold has another $100 or so in downside and silver could see another 10% easily come out of its still-elevated price.  The iShares Silver Trust (NYSE: SLV) and the SPDR Gold Shares (NYSE: GLD) are experiencing different forms of chart failures right now.

The Gold Trust failed its 50-day short-term test last month and it has now been proving to fail on its 200-day moving average test for the longer-term outlook.  If the GLD does not get a bounce soon, there could be dead air down to $152 or so before technical buyers start sniffing again.

Be sure to see the Stockcharts.com charts below.  The Silver Trust failed its 200-day for longer-term investors back at the end of February and the beginning of March, but its short-term chart was failing at the 50-day moving average back to mid-March.  If this Silver Trust share closes under $30 and hangs out there for long, there is really a bunch of dead air down to $28 or even $27 before technical buyers will start sniffing.

Before you think that the end will never come, Kitco’s Allen Sykora noted today in a longer presentation, “analysts and traders suspect that the market will find some kind of footing before long.”  As we always say, charts matter but they are often corrected by a whole host of excuses as to why they did not work in a particular instance.

The weakness in metals is turning the key gold shares into value traps rather than value stocks.  The $41+ billion dollar in value of Barrick Gold Corporation (NYSE: ABX) is even down 4% at $41.21 and that is $1.00 under its prior 52-week low.  A 4.3% drop in the Market Vectors Gold Miners ETF (NYSE: GDX) down to $46.65 is down $1.40 under its prior 52-week low of $48.05.  And silver is proving to be the devil’s metal for Silver Wheaton Corporation (NYSE: SLW) with a 4.2% drop to $31.30, but its 52-week low does not come into play until $25.84.

This is a difficult time to play a chartist in gold and silver.  The underlying theme is that both metals are weak and could get much weaker.  We usually prefer more fundamental analysis and the fundamental analysis is not supportive either.  If no more easing measures are going to be invented, then the dollar’s rise against the Euro will only help put pressure on gold and other commodities.  And more specifically, investors as of today are not able to successfully claim that gold is a hedge asset nor that it is a risk-on asset worth buying.

Stay tuned.  Maybe silver is not the only devil’s metal.

JON C. OGG

Chart provided by Stockcharts.com: