The sharp rally in gold and silver was over in less than ten minutes yesterday, giving way to a “flag” correction that was lazily continuing to unfurl almost half a day later.  This is a modestly encouraging sign, since we’d gotten used to seeing bullion’s rallies evaporate like gushers of steam from a geyser. The Comex June Gold contract exceeded every minor benchmark we’d set for it, so our bias will be bullish for a change as Monday’s night session evolves. We say “bullish for a change” because we’ve been making bulls prove their case every step of the way lately. Rallies have shown little follow-through, and we’d rather not be tricked into buying on a false signal. There is still a bearish target at $845 outstanding, but it would become history on just one more strong upthrust. 

 The top of yesterday’s $20 surge hit 908.30, but there was further upside potential over the next 18 hours to as high as 919.80. That’s a Hidden Pivot target, and its breach would hint that still more strength is coming.  But it would take more than that – specifically, a print at 935.90 (basis the June Comex)  — to turn the daily chart bullish for the first time since mid-February.  July Silver looks just as encouraging and need only rally to 13.750 to turn its daily chart bullish. That would represent a move of about five percent above yesterday’s settlement price of 13.050.

 Fear Will Return

Technical analysis aside, it’s hard not to be impressed with the way gold and silver have held up under the pressure of a hysterically complacent stock market’s nearly nine-week-old bear rally. The rally should be viewed as an inversion of reality and therefore a negative for bullion, which tends to move higher when fear is waxing. Much as the waterline recedes ahead of a tsunami, fear has receded precipitously over the last couple of months, ostensibly because a few big banks reported that they made some money. We have pointed out why their earnings are as bogus as Bernie Madoff’s, however, and that’s why we expect fear to return sometime soon – probably before June. If this is correct, the base that Gold has been building since early April should be sufficient to propel the June contract to at least $1070, a new record high. In percentage terms Silver’s potential is even greater, since the July contract could hit $16 – nearly 19 percent above current levels – over the same time.    

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