Tuesday, February 8, 2011

Gold breaks out

Readers of this blog mostly are long-term gold/silver investors who are not concerned with intermediate moves in gold/silver prices except to use dips in prices as opportunities to add to their positions. Still, daily $1 jumps in silver and $20 jumps in gold are of interest to all precious metals investors. If nothing else, investors have wonder if the moves are of significance in the long-term view.
Gene Arensberg, analyst and editor of Got Gold Report, believes that gold’s September 2 price increase of $21.50 was significant in that it was a breakout from a huge consolidation triangle. Arensberg expects the trading to continue in the direction of the trend that preceded the consolidation. The direction of the trend preceding the consolidation triangle was, of course, up.
This is reassuring to investors who have bought in the past few months. Investors who entered the gold/silver market a few years back were long ago confident that they made correct decisions. Technically, the picture is not as clear for silver, but the price action to the upside confirmed gold’s move out of the triangle.
Reassuring to silver investors are the positions reported by the large bullion banks. The nominal sizes of the banks’ short positions in silver were essentially unchanged, meaning that the banks did not add to their short positions as prices rose, which is what they usually do if they expect lower prices in the intermediate. When the bullion banks expect lower intermediate prices, they add to their short positions.
Relative to all commercial traders’ (36 in all) net short silver futures positions, the two bullion banks’ percentage fell from 76.3% to 62.2% over the past month. This is another short-term positive sign for silver investors as it suggests the bullion banks are not yet ready again to take increased short positions in silver.
Arensberg’s analysis also shows the bullion banks lightening their short positions in gold, which may be the reason that gold broke out of the consolidation triangle. Or, the bullion banks may have reduced their short gold positions out of fear that gold was going to break out the triangle regardless of what they did.
Although following what the bullion banks are doing is interesting (sometimes fascinating), the overriding reasons for buying gold and silver are the expansive monetary policies of the world’s central banks, primarily the US central bank, the Federal Reserve System. In the short-run, the bullion banks’ activities will influence the prices of gold and silver, but in the long-run the quantity of freshly-created fiat currencies will determine gold and silver prices.
Arensberg’s Got Gold Report is, in my opinion, the best free technical analysis of the gold/silver market, especially his look at the large commercials’ and the bullion banks’ positions in the gold and silver markets. I encourage gold/silver investors interested in technical analyses to read Arensberg’s Got Gold Report, a copy of which will be posted on www.stockhouse.com in a few days. When the report is up, I will provide a link.

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