October 3, 2010 – There is nothing scary about these charts, provided you own some physical gold and/or silver. Both precious metals are in clear uptrends. Both precious metals are making new highs - record highs for gold and 30-year highs for silver.
Charts are one of the important tools that I use when looking at markets. They provide a clear picture illustrating whether a market is in an uptrend, downtrend or moving aimlessly in a sideways trend. Identifying the trend and taking your position in harmony with the trend is probably the most essential principle when following markets. So generally I turn to charts first when looking at any market in order to identify its trend.
We can see in the above charts that both gold and silver are in clear uptrends. Both precious metals are lined up for further jumps in their price.
There are some other important messages from the above charts.
1) The gold chart is very powerful. Note the green line marking the uptrend is bending upward. Given that this chart is prepared on a log scale, the gold price is becoming hyperbolic, not just parabolic.
2) Silver has been underperforming. Its chart is not yet giving an indication that the silver price will become hyperbolic. Note too that gold broke out of its accumulation triangle several months ago, but silver only accomplished this feat just days ago.
A third chart is necessary to illustrate silver’s relative performance compared to gold. The following chart presents the gold/silver ratio.
There have been several sharp downward spikes in the gold/silver ratio. Some of these spikes resulted in periods of huge outperformance by silver compared to gold. Right now the trend favors silver relative to gold, so assume that the ratio will fall further.
The precious metals are being driven higher by many factors. For example, the CRB Continuing Commodity Index last week reached prices not seen since August 2008, which is the month before the Lehman Brothers collapse led to several months of falling commodity prices. Crude oil is back above $80 per barrel. Last month the Federal Reserve became the largest owner of US government debt, which brings up another major problem – the federal government’s debt continues to soar as a result of federal spending that far exceeds federal revenue in today’s weak economy.
These factors are reflected in the above charts, which paint a clear picture – gold and silver are in uptrends with no sign of a top. We can therefore conclude that those factors driving the precious metals higher for the past several years will continue for the foreseeable future. The outlook for gold and silver remains very bullish.
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