Austrian Traders Journal

When it comes to saving up a store of value, Austrians love gold. But the past year has been less than kind to the precious metals as gold fell just over 20% from its highs before rebounding some and silver fell nearly 50% from its highs before finding a bottom. Are the Austrians wrong? Is the run in precious metals over?

A look at the weekly charts in gold and silver show a couple of very sharp drops in each, followed by bounces, with each bounce failing to make a new high. These are bearish signs. However, after the second sharp drop in silver, silver hasn’t made a new 52-week low, either. In fact, gold and silver look to be holding support really well, and if one were to draw a trend line at each of the peaks (where the prices meet resistance), one can see that just this week that prices broke out above the trend. All signs now point to strength.

Gold holds price support during down-trend. This week, Gold breaks out above trendline resistance.

Silver holds support during downward trend. This week, breakout above trendline resistance.

I attribute the breakout this week to markets anticipating good news for the metals coming out of the FOMC this weekend. But whenever the markets are anticipating something, I get skeptical. I begin asking myself, “Okay, but what if that doesn’t happen?” In that case, silver probably would have gone back down to the 26.50-28.50 range it had been trading in the past few months, and gold would have gone back down to the 1550-1650 range. After what happened with Ron Paul at the RNC this week, I wouldn’t put it past the markets to kick me while I’m down.

In early morning trading Friday, it looked like that’s exactly what was goin to happen. I even placed a trade betting on the price of silver dropping, and profitably exited the trade once the price had fallen to a key technical level. But rather than continuing to drop, the price bounced, ultimately spiking to the week’s high. It broke through that high in the afternoon, at which point I entered in a new trade, this time betting on the price to rise further. Sure enough, it trended up the remainder of the day, ending in a spike in the last half hour before the closing bell.

Bought Puts at 9:48 AM, sold them at 10:03 AM. Bought $USLV afternoon breakout at 12:59 PM.

So I went from betting on the price to go down in the short-term to betting on it going up all in one day. The past couple of weeks have been good to gold and silver, so much so that I was anticipating a major retrace Friday. Since that did not happen, these charts are looking very strong to me. A retrace in the near term is still very likely, but it will be a lot more mild than the one I was looking for Friday.