Gold and Silver Technical Update

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Gold (XAU/USD)
Gold 7/28/2011 4H chart
Head and Shoulder and Other Bearish Signals:
- Gold is seen forming a head and shoulder pattern in the 4H chart. If the market can stay below 1607 today in the Asian session, we can see this topping lead to some downside correction.
- Another bearish signal is an extended bearish divergence, although this is already being resolved and may not be relevant as the RSI heads to the bullish momentum support at 40. This means if the RSI remains above 40, the bullish momentum is still intact.
- The structure is ripe for a correction as well, finishing the 5th wave of a 5th wave. In Elliott Wave Principles, a 5-wave push, especially one with a strong 3rd wave, reflects a complete impulse wave.
- A couple of retracement projections after an impulse wave are 1) near wave 4, and 2) near 50% retracement. These are near other important levels as well. The wave 4 pivot is near the 1576 level and also 38.2%, which was the record high until only recently. The 50% retracement is near 1550-1556, a support zone that use to be a resistance zone.
- Only a break below 1534 opens up the scenario of a major reversal.

Silver (XAG/USD)

Diagonal Triangle Breakout:
- Silver has also completed the 5th wave of a 5 wave rally. This terminal turned out to be a diagonal triangle.
- Also similar to gold, there was a divergence with the RSI, which is now resolved. The next signal is a break below, which in the making.
- The bearish correction targets are analogous to gold, wave 4, and 50% retracement.
- With silver, wave 4 is near 38.2% retracement also, and is at a pivot, 38.20.
- The 50% retracement level is just below 37.50, near 37.40.
- The market remains bullish from these levels, but a break below 36.75 suggests a major bullish failure, and a major reversal can be brewing.

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Fan Yang CMT
Chief Technical Strategist