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Gold & Silver: Explosion ahead!

Stephan Bogner
21 Feb, 2006

When the gold price hit his all-time-low of $252,50 on 25. August 1999, the price jumped explosively on the 20. September from $254,50 to $327,50 on the 5th of October. Many saw the 20-year bearmarket of the gold price as being finished, however, the price went into a down-trend for another 20 months. On the 20. February and 1. April 2001the gold price marked a double bottom at $255, whereafter the new up-trend began. This new up-trend was running on the lower trendline (green) being the last support-zone for the gold price and only was breached slightly at the end of 2001 when the first red resistance interesected with this (green) trendline. About $100 above this important trendline was a similar dominant trendlinie runnung that was touched as resistance 4 times in the first 4 years. This upper (green) trendline deviates itself from Augist 1999 when the gold price hit its all-time-high. It is an extremely bullish or bearish signal if such a yearlong trend channel is being broken significantly.

In the first days of the new year 2006, the gold price succeeded in sicnificantly breaking the upper trendline when the price broke above $530 to $575,30. A few days ago, the gold price corrected sharply to $535,10 - and therefore exactly to this trendline. Such a "pullback" to a formerly strong resistance trendline is normal and even "healthy" as a transformation from resistance to support is thathow being testet, confirmed and completed. In the following days the gold price started rising self-confident again to $552 at the very moment. The indicators RSI and MACD have just landed of an intersection of various trendlines and therefore are situated (same as the price oscillator PPO) on supporting levels. Therefore we come to the conclusion that a strong price acceleration period will start immediately. Now, as the trend channel along with his limiting trams is not active anymore, the question is, where the new travel destination of the gold price is.

If one takes the above chart and further puts in a few more rightly positioned parallels, one receives the below chart that is answering the latter question for the next weeks.

Silver is being analized lusty from many sides only in comparison with the gold price as the price movements of silver are dependent of the ones from gold; in other words: both currencies are perfectly positive correlated. And indeed, if one takes a look at the below silver price since 1980 one can see that the silver price is rising as well within a trend channel which was broken to the upside recently and just undertook a pullback to the formely strong resistance line. However, one difference is that this upward trend channel began 1991 - exactly 10 years before gold.

The indicators MACD and PPO are showing that a breakout above the formerly strong resistance lines occured recently and that the pullback to this new support line seems to hold. A positive price acceleration now may start. As soon as the $10 mark is being conquered hand in hand with the dotted-trendline (green), we are expecting a strong and explosive price boom.

On the upper part of the above chart one can see the silver price relative to the gold price; also known as the silver-gold-ratio. This shows a massive triangular price formation which limiting trendlines are approaching themselves more and more. Typically, a price breaks out after _ of the total length of the triangle. A breakout can therefore occur anytime now, whereafter the explosive or crash-like "Thrust" begins (consequence of a triangle). The question is therefore, if the "Thrust" will go to the up- or downside - if silver rises stronger than gold or the opposite.

The next chart, the silver-gold.ratio since 2003, may answer the last question. One can see clearly how volatile silver moves relative to gold what phenomenon is being argumented with that silver sometimes can rise stronger than gold but that the corrections can be stronger as well. However, the bottom line is then in many places that in the long-haul these ups and downs are being compensated again and can be seen on the below chart with a first glance: namely that both are running "sideways". If one takes a second glance at the silver price relative to gold, this sideways movement can also be seen as a triangular price formation. The consequence of such a price formation ("Thrust") becomes however a surprise for all those that labeled the price movements within the boundaries of the triangle solely as a "sideways movement" and became accustomized to that.

At the end of 2005, the ratio succeeded to break the upper red triangle resistance line. A few days ago, the ratio undertook a sharp pullback to the apex of the triangle whereafter the Thrust follows. This Thrust already started to drive to the upside what make us optimistic that this Thrust will become (more) noticeable soon as the minimum target of a to the upside thrusting price is to transform the highest point of the triangle into a support to be able to start a new and sustainable uptrend. The already started Thrust has not been noticed yet as the relative price is still moving within the green and violet trendlines and therefore slightly to the upside. However, as soon as the violet resistance is being breached and transformed into a support, an explosive and therefore noticeable jump to the upside may begin which we see going first to the grey resistance line.

The indicator RSI recently just landed on the green support line and already began to drive to the upside what makes us bullish that a strong rise is near. The price oscillator PPO doesn't have much more place between the black and red trendlines and we expect a breakout anytime now which we see exploding to the upside meaning that the silver price accelerates much faster than gold.

Eventhough we are extremely bullish for the price of gold at the moment, we favorize silver, because we think that not only because of the many fundamentally different reasons silver will appreciate much more than gold in the long-haul, but that seen from from a short-term perspective, this long-term appreciation potential is now becoming reality.

As can be seen below, the silver price is at the apex of a triangle. The Thrust is beginning now.

The breakout out of the triangle was already marking the resistance which needs to be broken: $9,96 and therefore $10.

Fasten your seat-belts, the silver rocket is on its way to the moon (home) now.

Stephan Bogner

   

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