Approaching Critical Short-Term Levels in Precious Metals

Short-term calls are always tricky, but three precious metals are approaching support levels where their decline would likely accelerate if those levels/areas are breached.

As most of you know, support tends to be support because a lot of transactions have recently occurred there. The more recent, the more significant, because memory is like an exponential decay function of time. And the basic principle is people tend–in a way that is more emotional than rational–to close out risk when an asset returns to the level where they entered the position. You know, the old “I’ll sell it when it gets back to where I bought it” kind of thing.

Here’s are the 31 day charts of silver (SIZ7), platinum (PLF8), and gold (GCZ7). The support areas are very clear, especially with respect to platinum and silver.

Silver:

You can see the level in the front silver contract is 16.60. We are at 16.67 as I write this.

Platinum:

Platinum has huge support in the 915 area.

It also has important long-term support in the 900 area. Platinum has been the weakest of the precious metals for years. Here’s the five year chart below, with a red line drawn at 900. If that breaks, the next logical stop is 810.

The front platinum contract is trading at 919.4 right now.

Gold:

The critical area for front-contract gold is 1267-1270.  We’ve bounced off it twice already. The front contract is 1270.6 right now.

GDX and GDXJ, which are often leading indicators for the metal itself, have already broken their recent lows.

My guess it that it happens and we get the breaks, but from a risk management standpoint, if you don’t already have short positions and you are watching closely, it probably makes better sense to short the break rather than anticipate it (unless you are managing very large AUM). Also, if one goes, the odds of the other two following increases significantly. And if two of the three break their levels/areas, the odds that the third one is about to go are about as good as it gets in our probabilistic business. Good luck.