Is a powerful rebound likely in silver, gold prices?

Rarely has such technical destruction been visited on stalwart sectors such as gold, Silver and the mining stocks(GDX).  The silver charts reveal technical damage not seen since the destruction of 1984.  It can only be conjecture that can account for a once in a generation obliteration of a once hallowed sector.

It must be remembered that both gold(GLD) and silver(SLV) had major moves earlier this year to the $1900 and $50, surpassing overhead resistance and reaching overbought territory.  This may be the reason why the decline in precious metal is overextended and extremely oversold.  We urged caution back in April for silver and in September for gold.  Silver has characteristically corrected close to 50% from its highs, while Gold has fallen less than 20%.  Pullbacks are normal and restorative in a secular bull market in precious metals especially after explosive moves.

Unless such technical destruction is reflective of an upcoming geopolitical news development, we must look for more mundane causes.  When the woods are ablaze, the fire obliterates the sequoias at the same time they incinerate the pines.  The recent declines may be the result of a rush to the U.S. dollar (UUP) and treasuries (TLT).

Fukushima’s can be explained rationally as a result of a millennial event consisting of fire, wind and flood.  The chaos through which we are passing defies explanation.  It is as if the inmates of the asylum have taken overWall Street. 

Unless there is an underlying exogenous catastrophe that lies ahead, what is being witnessed is a tale of sound and fury told by an idiot.  We believe that the markets are reacting irrationally to rational fears of deflation compounded by a flight to cash in fear of risk.  Gold Stock Trades has reiterated on many occasions that it is inadvisable to fight the Fed.  On numerous occasions we said with one stroke of the pen the Central Bankers could reverse the entire market.

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Posted by Silver Guru on Jan 2 2012. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry