Gold and Silver Clobbered After “Good” Jobs Report–Updating Levels

After taking profits early in big down day earlier in the week, we feel good about having re-entered the short positions via the puts after the bulk of the spike was completed. This is not to say that we are assured of major profits but by sticking to our conviction on the charts, it looks like we might make a little extra money after all.

Gold sliced right through the key “round number” support at $1700.00 and silver too fell below round number support of $32.00. Remember that I have been really hammering home the large commercial short positions on the COT Charts and the extraordinarily high large spec long positions on the COT charts that, just a week and a half ago had surpassed the net spec long positions in the month before the May 2011 silver crash. It was these COT numbers that I couldn’t shake and which left me doubting the sincerity of any move up in the metals.

Just yesterday I noted that we had some key levels to watch for in both metals. I had indicated that according one of the principals I use to do my technical analysis implied that the corrective bounce was technically enough to suffice a counter-trend correction but that more upside was not out of the question. Intermediate short term support lied in the $32.00 level for silver and this was breached this morning. The next line of major support lies at $31.05 which represents the 200 day moving average. As for gold, we also blew past the round number support of $1700.00 but immediately beneath that lied technical support at $1695.00. This was also breached. The next level of strong support for gold is the 200 day MA at $1665. That level must hold to prevent what could be a rapid decline from there if it fails.

More importantly, the dollar index which had seen strong overhead resistance at 80.20 has now seen that resistance fail. As I write this, the index is at 80.43. My intermediate short term target for the index is 80.63 which marks the 200 day moving average and should provide some upside resistance. If that’s breached then I look to 82.50 as the next line of solid overhead resistance. Remember I wrote last week that dollar bear positions were also at extremes so this move could see a lot of short covering to help bolster the move higher, and quicker. Today’s move catapulted the dollar index above the 50 day moving average which could signify the start of the breakout.

Elliott Wave technical analysis followers take heed because this could be the start of a wave C decline which is usually the most violent decline.