Precious Metals Start Week Above Support Levels

The Market Gage - Dillon Gage's Precious Metals Newsletter

Precious metal prices start off the week above the very important support levels at $1,132 in the February Gold Futures and $ 16.06 in the March Silver Futures contract.

After a few of our readers asked last week why I refer a lot to levels of support and resistance I promised I would address it today.

For those who have been around awhile and remember when the COMEX Floor was open and only used open outcry for trading, charting gold and silver prices back then was just a tool traders used to try to predict future market trends.

As the Exchange eliminated open outcry trading and went totally with their electronic platforms, trading strategies changed as well. Sophisticated trading technologies emerged created by programs designed for the trader to be the first in line to execute a trading strategy whenever a news event or price trigger is met.

So algorithm programs were created. Algorithms are computer programs that execute a specific strategy. To be more specific, algorithms are a step by step set of operations to be performed as a calculation, data processing and/or automated reasoning tasks as explained by Wikipedia.

In the Precious Metals arena, some algorithm programs execute trading strategies that are triggered at certain price levels. When these levels are met, the buy or sell orders are executed and the positions are then taken over by the trading desk.

So when I ask my technician friends who just use technical levels to trade precious metals, they try to anticipate market levels that are expected to accelerate trading activities or stop trading activities at certain levels. By no means is this an exact science, but a tool used to try to predict anticipated market trends. I must admit I was never a big fan of charting markets, but to give credit to the ones who do in 2016 they did a fabulous job. Please remember their past success is history and one cannot expect future results to have the same success. In other words it’s just a gamble, so to speak, you can be on a win streak one second and lose it all in a blink of an eye.

Charting also cannot anticipate significant news that hits the wires or anticipate where premiums in the coin market will go in the near future. It’s just one of many tools the Wall Street Gold and Silver trader has in his or her arsenal.

I hope this answers all the questions my readers have on support and resistance levels.

Back to the markets. News in the ETF market, happy to see inflows in silver on Friday increasing by over one million ounces. Gold on the other hand saw a redemption of over 220,000 ounces out of the fund.

The dollar just slightly higher this morning and bonds yields both here and over the pond are seen in negative territory. A Wall Street gold trader I spoke with this morning said he still likes his short position and without any significant news to speak of, he believes the market will continue to trend lower. He also indicated at this point he believes silver is more vulnerable than gold to the downside.

Have a wonderful Monday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.