The past few months have been tough for those holding precious metals stocks, PM futures contracts, or physical bullion. With silver trading down 41%, precious metals stocks down 30%, and gold 15% -- people are scratching their heads.
The question everyone keeps asking is when can I buy gold and silver?
Unfortunately that is not a simple answer. With the news unfolding across the pond and the bullish outlook for the US Dollar index, the next move is a coin toss. That being said, I do feel a large move brewing in the marketplace so I am preparing for fireworks in the first quarter of 2012.
If you step back and look at the weekly trend charts of the dollar index and the S&P 500 index, you will see the strength in the dollar along with a possible stop in equities forming. What these charts are telling is that in the next 3 months we should know if stocks and commodities are going to start another multi-month rally or roll over and start a bear market selloff.
With the holiday season nearing and hedge fund managers sitting on the sidelines just waiting for their year end performance bonuses, I cannot conceive any large selloff start until January. Selloffs in the market require strong volume and the second half of December is not a time of heavy trading volume.
This leaves us with a light volume holiday season, major issues overseas, and no big money players willing to cause waves.
So let’s take a quick look at the charts and find out where the line in the sand is for the dollar index, gold, and silver.
Dollar Index Daily Chart
This week we have seen a strong shift of money out of risk off assets (bonds) and into risk off (stocks). This shift is happening before the dollar has broken down, indicating the dollar may be topping. This could be an early warning of higher stock prices going into year end. Also note that light volume market conditions also favor higher prices.
Gold could still head lower but at this point it is holding a key support level. If we see the dollar break down below its green support trendline then I expect gold to have a firm bounce to the $1675-$1700 level.
