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Weekly Gold and Silver Updates 2/4/2011 - Resistance at Important Fibonacci Retracement

Gold (XAU/USD)
Gold

- The rally in gold since the end January hit an impasse at 1357. This was coming up on the 61.8% retracement level at 1361, and the market has topped off.
- It can confirm a top if it closes below 1343 in the 1H chart.
- The 1H chart should also see the RSI dip below 30 for a bearish signal. The RSI in the 4H chart almost invalidated the bearish mode, but the readings have remained mostly below 60, even though it was cracked.
- The bearish scenario opens up further if the market can break below 1323. 1309 would be the next target after 1323 in the very short-term.

Silver (XAG/USD)
Silver

- Silver was also under the 61.8% retracement level last Friday. As gold respected its fibonacci level, silver forged forward, breaking above the 28.35 area where 61.8% retracement resided.
- The RSI in the 4H chart rallied above 70 to show bullish breakout momentum. We are currently seeing a strong bearish candle develop that can start the consideration of a bearish attempt, but it is too early.
- Silver could continue higher above the 28.70 support, seen as an important pivot int he 1H chart. In fact, in the 1H chart, we can see a positive reversal.
- Staying above 28.70, the market can rally towards 30.20 (78.6% retracement seen in the 4H chart).
- Below 28.70, the market is likely going to slide to test 28.00. If that breaks, we can consider the bearish continuation towards 26.50, and perhaps breaking even lower towards 25.00.

Is the rally in gold and silver over? Could a divergence between gold and silver be forming if silver continues pushing higher while gold declines? We would love to hear what you think.
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Fan Yang CMT
Chief Technical Strategist