Spying a Bottom in Precious Metals

 | May 31, 2013 | 9:00 AM EDT
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When I consider some of the bigger-picture charts I have looked at in the past, I always think of that old proverb about not seeing the forest for the trees. If I hadn't looked at these charts, which are typically on the weekly or even monthly time frame, I would have missed some very important technical information.

With that in mind, I've been looking at a monthly chart of the gold futures contract, as well as a weekly of iShares Silver Trust (SLV) -- and I'm seeing some signs that we should start to look for a possible bottom in these two metals.

Let's start with the monthly gold-futures chart. (I did initially do my work on SPDR Gold Trust (GLD), but I found that the futures contract was more useful, since it provided more back data.) When gold was falling out of bed last month, I looked to this higher-time-frame chart in order to see if there was any reason to look for a low to develop. In other words, was there any support?

Gold Futures -- Monthly
Source: Dynamic Trader

What I found was what I like to call "symmetry," or similarity when comparing swings in the same direction. I found two prior declines that brought gold lower by $590.40 and $620 per ounce, respectively -- similar to the $602.20 pullback from the September 2011 high to the April 2013 low. That symmetry offered the potential support I had been seeking.

Of course, the daily charts are still showing a bearish pattern. But, with this bigger-picture look at the "forest," I have to consider that the larger gold rally could resume.

GLD -- Daily
Source: Dynamic Trader

Switching now to the daily chart of GLD, the fund has retested that April low -- and this move took place just as the price came into a grouping of Fibonacci time-based cycles. That marked the start of another bounce in gold. At this point, I'm not fully convinced that a major low is in place, but both the monthly gold-futures chart and the daily GLD -- and the timing on these charts at the last low -- give me reason to consider some low-risk countertrend buy entries.

I'm seeing one more factor that supports the notion that the GLD has already put in a low or is close to it: a rather healthy price cluster of support in the SLV.

SLV -- Weekly
Source: Dynamic Trader

Note that, on the weekly chart, the SLV is on top of a very healthy support decision between $18.71 and $19.96. Just above that, the recent low was essentially made at a 1.618 extension of the prior low-to-high swing. Although SLV could still fail, I am going to watch for buy signals here, as well as in the GLD. Should the SLV rally above the $23.70 area, that would suggest to me that a more important low is in place. Until then, I will tread lightly.

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