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Gold & Silver: “False Breakdowns” Create Good Buying Opportunities

Jeff Macke

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Gold and even silver are looking good to J.C Parets, a market technician and founder of AllStarCharts.com, despite breaking widely viewed critical support levels late last year.

For those who were preoccupied with things like family and weren't paying attention, the precious metals have had a crazy trip since Christmas. The largest gold and silver ETF's, (GLD) and (SLV) respectively, hit 1-month lows on December 27th only to come screaming back in the first day of trading for 2012.

The sharp reversals look like a prime opportunity for traders to get long with defined risk. Parets notes "false moves create fast moves in the opposite direction."

Obviously we saw a rip-snorting bull rush in the metals yesterday but Parets says playing gold and silver long is the right play now, regardless of missing the lows of last week. Using gold levels as an example, the chartist sees $1,550 as "fixed lows" that stopped out gold holders last week. Those automatic sell orders tend to bite traders in the back side when a move proves illusory, giving a bid to metals and muting any sell-off.

"With proper risk management" Parets wants to buy silver and gold against the lows made December 27th. That gives holders a 5 - 10% downside risk with upside resistance much higher. Trading is all about risk versus reward and Parets likes his chances on the precious metals.

Parets makes a good case but markets are always subjective. We want to know what you think, let me know via Twitter @Jeffmacke or in the comment section below.