Are Silver and Gold Giving Us a Signal for Friday’s speech?Aug 27, 2012
Chad Karnes, CMT
The Federal Reserve meets this week and speculation is rampant about Bernanke's next move. Silver and Gold may have already given us a clue last week, but what did the S&P, oil prices, and Treasuries tell us?
Something weird happened this past week.
Gold and silver rallied, and rally they did! This past week silver skyrocketed over $2.50 up 9% for the week. Gold was up over 3% during the same time period. But that is not the weird part.
Silver and gold were pretty much the sole assets that rallied this week, and that is not normal.
The S&P 500 (NYSEARCA:SPY) was down 0.5% this week.
The Nasdaq 100 (NASDAQGM:QQQ) was flat.
The Dow (NYSEARCA:DIA) was down 0.8%.
West Texas Intermediate Crude was up only 0.4%.
And, interestingly, Longer Term US Treasuries (NYSEARCA: TLT), which usually perform opposite of the risk assets, were also up 2.6%.
What is it, if anything, the silver and gold markets know that the other risk assets do not?
Normally silver, gold, oil, the euro, and the US stock market are positively correlated. The below chart displays the long term correlations among silver (gray line), oil (gold line), and the S&P 500 (red line). The correlation between all 3 assets has been quite positive for some time, but has slipped somewhat in recent months.
A Tell for Jackson Hole?
This Friday Ben Bernanke and the Fed are meeting in Jackson Hole to decide the fate of America. Maybe that is a little exaggerated, but given that Mr. Bernanke seems to drive the market more than earnings, fiscal cliffs, elections, or any other acceptable reasons, forgive me for being a little sarcastic.
The media (and on Friday the stock market) got giddy over a letter Bernanke wrote 8/22 to the Chairman of the House Oversight and Reform Committee. In this letter he said nothing more than he always has, “the Fed will provide additional accommodation as needed”.
Speculation about Bernanke’s intentions run rampant.
If I lived in a bubble and only knew that silver and gold rallied that much last week, my first inclination would be that the Fed is going to announce something big this week.
But, then why didn’t the stock market, oil, and other risk assets confirm the metals rally last week?
Do We Really Need to Know the Reason for the Silver and Gold Rally?
One of the luxuries technical and logic-based analysis affords is it doesn’t really have to be concerned with reasons. Reasons are a justification for something that has already occurred and likely can’t really help us out now. They are in the past.
If Bernanke is going to announce something big, then Silver and Gold have already reacted to it, and we are likely late to the party if we were to make a trade based on what he announces.
A Better Strategy than Policy Speculation
At the ETF Profit Strategy Update we use technical analysis to help us get ahead of trends. We did this with Silver in late July.
On 7/29 I was watching silver prices and informed our subscribers in our Technical Forecast that, “The rising red short term trendline support line currently just above $26 is also a good stop loss spot and support line to watch. Good risk / reward set ups such as these are what we look for in our trading.”
The following chart accompanied that commentary showing the breakout, 200 day MA, and trendline support levels:
On 8/5 after that rising red support trendline held prices I followed up with, “For aggressive traders that are long SLV I have identified two good stop levels with the horizontal support at $26.55 as well as the lower rising support trendline at $26.15.”
The stop from that trade has now been moved up to $29.25 for aggressive traders, locking in great profits.
What's Next for Silver and Gold?
There now exists two open gaps that more likely than not will eventually be filled likely putting some pressure on Silver (NYSEARCA:SLV) prices. Longer term Fibonacci resistance and trendline resistance are coming into play on Gold (NYSEARCA: GLD) as well.
If Ben Bernanke wants to make some big announcement on Friday in Jackson Hole, then Silver and Gold likely have already capitalized on it and discounted that information. By then it will likely be too late to profit from his intentions.
At the ETF Profit Strategy Newsletter we avoid getting distracted by the color commentary from the media concerning reasons and opinions of what may or may not come to fruition. We use price, sentiment, and analysis to help us make trading decisions and stay ahead of trends before they happen.