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Gold Chart Needs Time to Rebuild: Yamada

Gold Chart Needs Time to Rebuild: Yamada

Gold and silver prices are down big, hitting new multi-year lows to start off the week. Retail investors still clinging to the idea that the decline in precious metals was transitory have been getting battered in 2013 with the SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) ETFs falling 19% and 27% respectively.

Louise Yamada, head of LY Technical Research Advisors, says the glitter twins of trading need to rebuild from the ground up, a process that could take years. "It's like a steel ball wrecking crane coming through your house; it's going to take time for the mason, the carpenter and electrician to put it all back together."

Yamada gently suggests that the enormous bull run is taking a rest. "The chart is still broken," Yamada insists. Whether you're a chartist or think of technical analysis to be voodoo, breakdowns are easy to understand in human terms. As an asset recovers disappointed buyers come in and sell every move higher, thankful just to get out alive.

The best case scenario for gold bulls is that the recent lows hold, allowing some sort of consolidation in the charts. $1,539 is where gold broke down and $1,321 is the trading low made in April. The latter mark is under fire today. Should gold close under that support expect another round of panic selling.

In regards to silver Yamada is, if anything, less hopeful. Those inclined to take a flier can get long as gold's less-precious sibling approaches $20 and hope that level acts as a backstop against yet another leg of a meltdown. Suffice it to say that's not an approach she would take herself.

"Hope is never an investment philosophy but we're all subject to it once and a while," Yamada says with a chuckle. Most investors would be better off hoping for things like world peace.