Retreat forms new channels

In their retreat from their recent rallies, gold and silver have formed new, wider channels parallel to the existing ones. A breakout from these new channels would be necessary for the precious metals to continue their advance, but that could take a while. Interestingly, GDX, after its precipitous decline, appears to be bouncing from a new channel line parallel to and below the existing channel, underscoring its relative weakness, which does not bode well for gold's immediate prospects.

GOLD (daily)

Upside: Gold has bounced off support at its rising 50-day MA. RSI has turned back up above 50. MACD-Histogram is flattening out.

Resistance: Fibonacci 23.6% retracement level around $944; top rail of new, wider channel at around $970.

Downside: The yellow metal may be stalling out just below the Fib 23.6% level. MACD has made a bearish crossover.

Support: Rising 50-day MA at $915.28; old downtrend line a little above $900.

Bottom line: Gold could consolidate for a while within its new, wider channel.

SILVER (daily)

Upside: RSI and MACD-Histogram have flattened out and appear to be turning upward.

Resistance: Flat 50-day MA; top rail of blue channel; thin magenta line.

Downside: Retreating from the top rail of its new, wider magenta channel, silver has crashed through the top rail of its blue channel and its 50-day MA, indicating that its breakout was a fakeout, after all.

Support: Rising 200-day MA at $16.67; bottom of magenta channel.

Bottom line: The retest of silver's breakout has failed, and the white metal could consolidate within its wider magenta channel for a while.

SILVER (weekly)

Silver is looking for important support at the thick blue bottom rail of its long-term channel, just below the Fibonacci 38.2% retracement level. Next support, at the Fib 50% level, is more than a dollar below, at $16.26, just above the 50-week MA. RSI is falling toward 50, where it could find support, but MACD has failed to make a bullish crossover, an ominous sign.

GDX (daily)

Upside: GDX has bounced on moderate volume and with long lower tails off the bottom rail of its new, wider channel. RSI appears to be flattening out.

Resistance: Flat 50-day MA at $46.29; flat 200-day MA at $47.69.

Downside: GDX crashed through its 200-day and 50-day MAs to close the gap at $44. RSI is back below 50. MACD has made a bearish crossover.

Support: Bottom rail of new, wider channel; double bottom at $41.61.

Bottom line: The gold-mining ETF could consolidate within its wider channel for a while.

GDX (weekly)

The gold-mining ETF is just above important support at the Fibonacci 50% retracement level around $44.50. Ominously, MACD has failed to make a bullish crossover.

U.S. DOLLAR INDEX (daily)

Upside: The index has re-entered its green channel, indicating the breakdown was a fakeout, and sits just above its falling 50-day MA. RSI is back above 50. MACD has made a bullish crossover.

Resistance: Blue trendline and falling 200-day MA, currently at 74.4.

Downside: RSI appears to be flattening out.

Support: Falling 50-day MA; bottom rail of channel.

Bottom line: Propelled by the reaction to its false breakdown, the dollar could reach the blue down trendline before resuming its decline.

Sharp pullbacks

Gold experienced a sharp pullback in its steep upward trajectory. Silver and GDX, which both tend to be more volatile than the yellow metal, experienced more substantial pullbacks. The rallies of all three are likely to continue -- with a retest of the breakout points if necessary, in the case of the metals. A failure of any such retest would be ominous.

GOLD (daily)

Upside: Gold is still above its initial breakout high and the Fibonacci 23.6% retracement level from its all-time high.

Resistance: Tuesday's high of $989.69; round-number resistance at $1,000; all-time high of $1033.90.

Downside: RSI was repelled at 70 and is declining. MACD-Histogram is showing a weak negative divergence.

Support: Initial breakout high at around $950; Fib 23.6% retracement level at around $944; old downtrend line a little above $900.

Bottom line: Gold has retraced about half of its nearly $80 rally after testing its breakout. The yellow metal should resume its rise soon, although it may consolidate for a while.

GOLD (weekly)

Gold pulled back precisely at resistance supplied by the top rail of its channel, as suggested in last week's post. MACD has made a bullish crossover, which indicates an intermediate-term rise in the yellow metal.

SILVER (daily)

Upside: Silver is near support at the top rails of its blue and magenta channels.

Resistance: Tuesday's high of $19.55; round-number resistance around $20; March high of $21.44.

Downside: RSI was repelled at 70 and is falling sharply toward 50. MACD appears poised to make a bearish crossover.

Support: Old downtrend line and magenta line at about $18; rising 50-day MA at $17.48.

Bottom line: Silver looks headed for a crucial retest of its breakout.

GDX (daily)

Upside: RSI appears to be flattening out just above 50.

Resistance: Bottom rail of purple channel; Tuesday's high of $51.84.

Downside: GDX penetrated the gap from mid-March around $52 without filling it, then recoiled to fill the gap from earlier this month between $47 and $48. In the process, the gold-mining ETF has broken back down from its purple channel to close just beneath its flattening 200-day MA. MACD-Histogram is showing a negative divergence. MACD may be heading for a bearish crossover.

Support: Rising 50-day MA at $46.29; recent low of $44.80; bottom of recent gap around $44.

Bottom line: The gold-mining ETF isn't displaying much vigour.

U.S. DOLLAR INDEX (daily)

Upside: The index has bounced back from the vicinity of its April lows, forming a bullish hammer candlestick on Tuesday.

Resistance: Bottom rail of green channel; falling 50-day MA, currently at 72.83.

Downside: RSI and MACD appear to be flattening out.

Support: Bottom rail of blue channel; all-time low of 70.7.

Bottom line: The dollar may retest the bottom rail of its green channel and resume its decline.

Breakouts confirmed

Gold and silver have confirmed their breakouts, and the U.S. dollar index has broken down from a four-month channel. A test of the March highs (low, in the case of the dollar) is conceivable.

GOLD (daily)

Upside: August gold successfully tested its broken downtrend line and has risen above its initial breakout high. RSI and MACD rising.

Resistance: Round-number resistance at $1,000; all-time high of $1033.90.

Downside: No clear indication.

Support: Old downtrend line at about $910.

Bottom line: Gold has tested its broken downtrend line successfully and could enjoy a run of about $100 -- the depth of the head in the inverse head and shoulders. The initial target of about $1,020 could easily be exceeded in a test of March's all-time high.

GOLD (weekly)

RSI has bounced off 50. MACD is poised to make a bullish crossover. Top rail of blue channel may offer initial resistance in the $980-$1,000 range.

SILVER (daily)

Upside: Silver successfully tested its broken downtrend line and has risen above its initial breakout high. RSI and MACD rising.

Resistance: Round-number resistance around $20; March high of $21.44.

Downside: No clear indication.

Support: Old downtrend line, just above $18.

Bottom line: Silver has successfully tested the top of its blue channel -- or the neckline of an inverted head and shoulders -- with an initial target of about $20, which could be exceeded in a test of the March high.

SILVER (weekly)

RSI has bounced off 50. MACD is poised to make a bullish crossover. Thin blue line may offer initial resistance at around $20.

GDX (daily)

Upside: GDX has surmounted its 200-day MA and broken back into its purple channel on strong volume without fully closing the breakaway gap between $44 and $45. RSI rising. MACD rising after it failed to make a bearish crossover.

Resistance: Recent high at around $50 and at $51.45; all-time high of $56.87.

Downside: GDX has left a gap between $47 and $48 that may need to be filled.

Support: Bottom rail of purple channel; flat 200-day MA at $47.53.

Bottom line: The gold-mining ETF is rallying but still lagging the yellow metal.

GDX (weekly)

RSI is peeking above 50. MACD appears close to making a bullish crossover.

U.S. DOLLAR INDEX (daily)

Upside: No clear indication.

Resistance: Bottom rail of green channel; flat 50-day MA, currently at 72.96.

Downside: The index was held back by the flat 50-day MA at around 73 and confirmed its breakdown from the green channel by falling below its initial breakdown low. RSI and MACD falling.

Support: Bottom rail of blue channel; all-time low of 70.7.

Bottom line: The green channel may act as a bearish flag, indicating a significant decline in the dollar is under way.

GDX:$GOLD ratio (daily)

RSI is peeking above 50, and MACD is poised to make a bullish crossover, suggesting that the gold-mining index could rise faster than the yellow metal in the near future.

GDX:$SPX ratio (weekly)

RSI is above 50 and rising, and MACD has made a bullish crossover, indicating that the gold-mining stocks could continue to outperform the general market for some time.

Testing, testing

Gold and silver are testing the breakouts from their downtrends (or the necklines of their inverted head and shoulders), while the volatile GDX is showing comparative weakness and the U.S. dollar index has broken back into its rising channel. We should know within a few days whether the breakouts are fakeouts or the real thing.

GOLD (daily)

Upside: August gold is still above the broken downtrend line/neckline of an inverted head and shoulders.

Resistance: First lower high at about $960.

Downside: Gold appears to have encountered some resistance at $950, a little above its Fibonacci 23.6% retracement level. RSI and MACD-Histogram have turned down.

Support: Downtrend line at a little below $920; flat 50-day MA, currently at $893.60; Fib 38.2% retracement level at about $888.

Bottom line: Gold may be in the process of testing its broken downtrend line. If it does that successfully, the yellow metal could enjoy a run of about $100 -- the depth of the head in the inverse head and shoulders. A breakdown back into the channel would be quite bearish.

SILVER (daily)

Upside: Silver cleared resistance at both the magenta and blue lines, then bounced off its broken downtrend line on Friday. MACD-Histogram still rising.

Resistance: Recent high of $21.44.

Downside: RSI has turned down.

Support: Broken downtrend line, just above $18; magenta line just below that; rising 50-day MA, currently at $17.12.

Bottom line: Silver has broken through the top rail of its blue channel, or the neckline of an inverted head and shoulders, with a possible target of about $20 if it follows through.

GDX (daily)

Upside: GDX has closed the gap between about $46.50 and $47. The decline on Thursday and Friday has been on low volume.

Resistance: Rising 200-day MA at $47.47; bottom rail of purple channel at about $48; recent high at $50.09.

Downside: GDX may have made a double top and has broken back out of its purple channel and down through its 200-day MA. There's another gap between $44 and $45 that may need to be filled. RSI is falling sharply after failing by a hair to reach 70. MACD-Histogram is declining.

Support: Flat 50-day MA at $45.55.

Bottom line: The gold-mining index is showing appreciable weakness, which does not bode well for the yellow metal.

U.S. DOLLAR INDEX (daily)

Upside: The index has broken back into its green channel. RSI is rising strongly. MACD-Histogram has turned up.

Resistance: Rising 50-day MA, currently at 72.97; top rail of blue channel.

Downside: No clear indication.

Support: Bottom rail of green channel, currently at about 72.5; bottom rail of blue channel.

Bottom line: The apparent fakeout could provide the impetus for a decent rally.