Investors should keep an eye on bond prices and the Dollar Index for signal that hyperinflation is beginning.
When looking at the gold and silver markets, I have to say that for the most part, they have been range-bound.
However, the “fiscal cliff” will be averted one way or the other and I think gold and silver will break out of this range in the same direction they came and resume their trends in that same direction.
But let’s also look at the longer-term charts to see the big picture.
Gold Weekly Chart
Gold is in a congested area between $1680 and $760 on the weekly chart. Although I have a change in trend to the downside, and we are breaking below $1680, it hasn’t established a longer-term trend, nor does it have a sell signal at this time. Gold’s monthly chart still shows it in an uptrend, but it needs to move higher soon or the trend could turn lower. There is also congestion between $1525 and $1800.
Silver Monthly Chart
The monthly silver chart shows the gray metal is also range-bound. The weekly range is between $30 and $34.50, and the monthly range is between $26.50 and $35.
If you are looking to buy gold or silver, I would wait, since we could see $1150 gold and $20 silver. Don’t forget, looking at a monthly chart, gold and silver has been trending downward since March 2011.
Moving over to the daily chart, silver had peaked on Oct. 15 and gold on Oct. 14, 2012. One of the keys to higher metal prices would be hyperinflation, which should cause higher bond yields. Therefore, I suggest waiting to see significant breaks in bond prices.
A 10 to 15 possible basis point break upward would be a good suggestion that inflation is starting.
Looking at the March Dollar Index, you can see it’s been range-bound between 79-81.50. It has not been able to close below 79.
For the gold market to rally, the Dollar Index needs to go lower on the weekly chart than range between 81.50 and 79.
On the monthly Dollar Index chart, we are stuck between 84.40 and 74. Taking out this year’s low of 78.10 could be the signal of the start of hyperinflation until the Dollar Index drops below the 2008 low of 71.05.
Monthly Dollar Index Chart
So looking at these markets suggests that the gold and silver have some technical work to do before they are a buy. You might have a chance of buying significantly lower.
If or when we have hyperinflation, many commodities should have inflationary rallies, provided other factors don’t come into play such as a bumper crop in grains or high inventories of oil. The metals could also rally with a strong flight to quality.
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