Near-Term Targets for Gold and Silver

Thursday September 06, 2012 09:15

It’s amazing. Suddenly, everyone is bullish again. Two months ago you couldn’t give away mining shares or Silver. No one wanted to buy. After back to back weekly gains (for essentially the first time since January) the gold bugs are back and proud. Bullish calls are coming out of the woodwork. This is good and all but as analysts our job is to stay ahead of the market, rather than react to or follow it, as so many professionals do. That being said, today we give you a quick synopsis of where things stand and the potential risks coming into play.

Gold has a bit of resistance at $1700 but strong resistance at $1800. Silver has initial resistance at $32.50 followed by stronger resistance at $35.00 and $37.50. The numbers reflect public opinion readings (source: sentimentrader.com).

While we believe the rebound has more room to run we have to note the sudden large increase in bullish sentiment. As you can see, public opinion in Silver has surged from only 32% to now 70% bulls. Two months ago only 47% were bulls on Gold. Now its 70%. Commercial short positions have increased by a similar degree. In Silver, commercials are now short 38K contracts, which is a large increase over 23K contracts from two weeks earlier. In the same period, the net short position of commercials in Gold increased from 140K contracts to over 200K contracts. Again, Gold and Silver have more room to rebound but be wary of the increase in bullish sentiment and overhead resistance levels.

To conclude, the trend in the precious metals complex is up and remains healthy though a great deal of speculative money has come aboard in recent weeks. In addition, one should understand that precious metals markets are in recovery mode and not impulsive advance mode. There is a long way to go before the next major breakout. These markets will have to grind through the supply created from the previous downturn. Moreover, October is typically a bad month for precious metals. However, we are in September and according to the charts, this rebound has more room to run.