Major Bottom In Precious Metals Could Occur This Week | Commodities And Options | Minyanville.com

Major Bottom In Precious Metals Could Occur This Week | Commodities And Options | Minyanville.com

www.TheSilverPrice.info

Normally catching a bottom is not difficult. Bottoms tend to occur instantly while market tops form during a process. Yet, I’ve found that bottoms of long-term significance do not occur instantly. Like tops, they take time to develop. For example, think about late 2008 to early 2009. Commodities hit their price low in December but the bottoming process began in October and wasn’t complete until May. Emerging markets hit their low in November but the process began in October and ended in March.

Returning to the present, we see that gold and silver look set to retest their late December lows. My firm's work leads us to argue that the metals will successfully retest their lows and soon emerge from what in the future will be considered a major bottom in line with 2008, 2005, and 2001.
 
We begin with a daily chart of gold which shows its daily closing prices and a volatility indicator. The percentage figure refers to the percent bullish reading from the daily sentiment index. As we noted recently, each bottom in god (except 2008) has come during a period of low and declining volatility. Volatility is currently at a nine-month low while only 7% of traders are bullish on gold.
 

 
Next, let’s take a look at the current Commitment of Traders Report for gold, which shows the commercial short position and open interest at the bottom. The current commercial short position has reached a three-year low while open interest recently touched a two and a half year low.
 

 
Moving to Silver, we see the metal is nearing significant support at $27. Silver closed at $28.93 and has a bit of room to fall before testing $27 and the 600-day moving average, which has been an important pivot point since late 2008. The current daily sentiment index is 16%. We think, with another day or two of weakness in silver, the daily sentiment index would decline to single digits. We also want to note that $26 is the 50% retracement of the entire bull market.
 

 
Silver, unlike gold, has seen more interest recently as open interest has increased since late last year. However, open interest would have to rise 40% to reach the old high. Commercial traders are net short 17.9K contracts, which is within a whisker of the 10-year low, which was reached at the end of last December. 
 

 
We remain encouraged that a bottom is developing in the mining equities. Below we show a weekly chart of Market Vectors Gold Miners ETF (GDX). Last week GDX bounced from $41, which is the 50% retracement from the 2008 low to 2011 high. Forty-one dollars also marks the strongest pivot point since $52. Furthermore, GDX’s volume was very close to a three-year high. Note how strong volume has market past bottoms.

Read more: http://www.minyanville.com/trading-and-investing/commodities-and-options/articles/precious-metals-market-bottom-market-top/5/14/2012/id/40976#ixzz1urPc1G2b