Chart of the week: Fresnillo, gold and silver

by John Burford from interactive investor |

Our chartist correctly called the top for these three assets. Here’s where he thinks they’re going next.

Fresnillo (LSE:FRES) shares are struggling, as forecast

In my COTW of 2 September, I noted that shares in the popular silver miner Fresnillo had likely rallied up to a major high – and an opportunity to take profits - as it was following the advancing silver price which seemed to peaking.

This is what I wrote then:

“The shares have retraced a Fibonacci 50% of the most recent decline and could turn down from here. But a slightly better target is the 7.85 area at the Fibonacci 62% for a turn.  Only a surge above the 9.00 would amend my stance.”

One of the major reasons for my bearish outlook was my prediction that silver had reached a major high. This is what I said then:

“I believe gold and silver are at close to major highs – contrary to the vast majority of pundits who are so confident of their allure that bullish sentiment towards both exceeds the 90% level – an extreme reading.”

And lo and behold, spot silver did reach a high only three days later. How’s that for timing? Here is the silver chart updated:

Source: interactive investor  Past performance is not a guide to future performance

And from that early September high, the market descended to the early December low of $16.50 – substantial loss of 16%. Fresnillo shares accompanied it down.

And here is the Fresnillo chart I posted on 2 September:

Source: interactive investor  Past performance is not a guide to future performance

In fact, there was one more push up to the Fibonacci 62% retrace at 772p on 5 September, and then the shares backed down with the silver price. That forecast was only $0.13 adrift – a bullseye in my book.

My suggestion to take profits then was right on the money.

So, how have the shares performed since?  Here is the updated chart:

Source: interactive investor  Past performance is not a guide to future performance

They have declined in a stair-step fashion and, last week, they met the yellow minor trendline resistance and bounced off it.

So, unless they can push up above the £7.50 level, which I consider unlikely, I maintain my bearish outlook. In fact, I expect silver prices to trend lower this year and draw Fresnillo along with my first target is the £5 region.

Note that my bearish outlook for precious metals flies totally in the face of current opinion, which is wildly bullish (as it was at the September tops).

For more information about Tramline Traders, or to take a three-week free trial, go to  www.tramlinetraders.com

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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