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).

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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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