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So far we are right on call as nothing
seems to be able to prop up the gold and silver markets (because nothing has happened fundamentally that has given the markets reason to buy the two). We warned
on April 25th that silver
was ready to collapse of
the neckline break of $31.09 occurred
and it sure did, as the price of the white metal has continued to fall, putting in lower highs and lower lows since
that time to sit at $27.72 (last I checked( which is a decline
of roughly $3.50 an ounce
or 10% since I wrote that piece.
In my view we
are on the verge of a major liquidity event that will
continue to suck out money from
the stock markets and the commodity
space. The other day I commented that we could
see oil at $80.00 and I wrote an update
on gold in which I was
concerned about the lack
of any real support level
given that both the 50 and 200 day moving averages were significantly breached. I wrote, and still believe that unless we
get a major fundamental
shift, that is, official word of international easing we will struggle to see much immediate
upside. Since then, gold has continued to bleed as has silver. The predicament for silver is slightly different
however because as an industrial metal, we must remain cognizant of the fact that if we are affected by a global slowdown,
and given silver’s industrial metal status, silver could fall, on a percentage basis, more than
gold.
 
$26.15 remains crucial support for silver.
The RSI is starting to dip into oversold
territory but as we have learned in the past, stocks, commodities etc. can stay oversold and overbought for that matter, for extended periods of time. However, I want to point out to readers that $26.15 remains a very critical
area for support and I think the market will test that area sooner rather than later.
If that critical support area is breached then
in my view, it’s a clear path to $22.00 which would represent the lower line of the downward channel. As silver has shown during this past year,
it has bounced off that bottom line of the channel twice, both at $26.15 however, $26.15 no longer represents
the bottom end of the channel
… $22.00 does. I would
hate to see what would happen
in the silver market if that $22.00 range is breached.
Believe or not by according to my analysis, the MACD has just had a negative divergence which implies that there may
be more downside ahead, or that the real selling is just
about to begin.
If course, this is just
my interpretation but I remain ready at the switch to go short silver
with a target
of $22.00 if the aforementioned last line of immediate support is breached. Keep your eyes open because as with gold, silver is in deep trouble at these levels. There is a positive in all this technical analysis; if silver can bounce
off $26.15 with some momentum, we could have formed a triple bottom
which could work to propel silver higher. For the moment however, as I noted at the outset, put aside all the noise… the fact
of the matter is that we are on the verge of a liquidity event that if not stemmed will result in all assets taking a tumble. It will take significant retail demand and material/significant central bank policy decisions
to move the metals back in the short term.
I’ve also
been watching the CRB commodity
index which has usually proven a reliable indicator on the supply for industrial commodities. When the index rises it implies growth.
The inverse is also true. The index’s top was in the first half of last year, not surprisingly near the same time that silver peaked.
Remember that the market was fraught
with all the fresh QE2
money. However, Europe is
definitely slowing and
the rosy headlines we saw in the United States to kick of the year have turned to grey. The index broke through support today as well indicating deflation is currently winning the battle. With increased deflationary
pressures though does
come the increased potential
for more economic stimulus but notwithstanding
the FED’s stated intent to be “at the ready”, It would be foolish
to trade on assumptions
but rather wiser to wait for confirmation. What is clear is
that the dollar, predicted
by many to have been dead
by now is seeing a lot of inflow. That run to the dollar
has significantly impacted
commodities and the markets
on the whole providing further indication that for now, deflation is winning over inflation.
As always, this commentary is not recommended to be a buy or sell recommendation
but is meant to point out
my own technical observations on the silver
market. Keep your heads up and eyes open. These markets and news can change on a dime.
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