Join The Trading Room

Silver Skirts Edge of an $8 Crater

By Rick Ackerman Posted on June 28, 2011, 2:59 am EDT Last Updated August 18, 2011, 1:01 pm EDT

Comex Silver ended the day near the edge of an abyss, threatening to plunge, eventually, to as low as $25 if even mild selling continues for the next few days.  Specifically, our downside target for the July contract would be $25.13 if the futures were to settle for two consecutive days beneath the key low at $32.30 recorded on May 12. That number is what users of our proprietary trading system call a “Hidden Pivot,” and we were initially encouraged when the futures reversed very precisely from it and moved higher over the last few weeks. However, although the rally has looked constructive, it still needs to surpass the two labeled peaks shown in the chart to clinch a bullish outlook for the intermediate- to long-term.

Unfortunately, the rally appears to be dying without having gotten past the two crucial highs, implying that the big A-B-C down-pattern will complete to its ‘D’ target at $25.13.  That number is the Hidden Pivot “sibling” of the $32.30 midpoint pivot, and if it were to be achieved, it would represent an almost precise 50% retracement from early May’s highs. Of course, the futures could still get second wind and steam higher, emerging from the danger zone with a print above 42.325 (Peak #2).  But it would take quite a leap from here – about 25 precent.  Moreover, in order to re-energize bulls sufficiently to vault Silver above $50, the rally would need to traverse the entire $2.85 distance between peaks #1 and #2 without a significant pause. In the meantime, as noted above, the futures will remain vulnerable to a 25% downdraft to $25.13 if they slip decisively below $32.30.

Worst Case for Gold

Although Gold futures have looked somewhat better, the decline of the last several days has brought them even closer to trouble than Silver. For in fact, yesterday’s settlement price for the August contract was significantly below the 1503.10 “midpoint pivot” analogous to the one at $32.30 in July Silver. The good news is that even if August Gold does its worst, we see it falling no lower than 1446.90.  That would represent a decline of only 3.6% from current levels and an 8.3% retracement from May’s all-time high, 1577.70.

***

(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

  • david June 28, 2011, 6:19 pm

    Forgive my simplicity,its not about spot price as that price is being measured in an extremly flawed currency that is purposefully debased.Rick does a great job with his forum and is a technical expert.He has to stick to his knitting and what i am stating does not minimize what he does.Dont look @ spot price of ag and au in us dollars .Think ounces.How many ounces of pm’s do i own.Yes if you look @ bank participation report and COT report it is set up extremly favorable for AG.Stack ounces my friends .when Ag is 250 dollars in 2 years wont matter if you bought @25 or 32.Note the dollar will go down further and AG will go up MUCH MUCH higher over mid and long term.Stay thirsty my friends

  • fallingman June 28, 2011, 5:06 pm

    The $25 target on a breakdown is obvious. It’s a measured move in an abc correction and a 50% retracement.

    Oh please, let it happen. I want more silver.

    But I’m sympathetic to those above who question how much technical analysis reveals in a market this crooked and I’m not so sure the obvious target means anything. I dunno.

    On the flip side, one could also take the view that Morgan et al have painted the tape so nicely that a move to $25 is self-fulfilling on any break.

    Again, PLEASE let it happen. They don’t just give away silver every day.

    FWIW…My plan is to buy now and keep buying into any weakness, because that weakness in price will be phony. It won’t be based on any real weakness in physical demand or a breakdown of the fundamental case for silver. Just da boyz playing games.

    Of course, the CFTC is there in Washington protecting us from manipulation at the Comex, right? Or is the CFTC just there in Washington?

  • evan June 28, 2011, 4:29 pm

    My buy in will be at $31.75…….. $25 are you kidding??

    I’m looking back to the weekly chart now, so unless you believe the bull market in PM’s over, we will see support around $31.7.

  • Jean Desjardins June 28, 2011, 3:48 pm

    I would agree that technical analysis doesn’t mean anything in a manipulated market such as silver. You can’t derive any worthwhile knowledge from it because the graphs don’t reflect a free market.

  • bill June 28, 2011, 3:10 pm

    I thought we were buying gold and silver to protect against the collapse of the dollar. Well. until it collapses TPTB can “say” gold and silver is worth whatever they want. The real price is what you have to pay to get it.

  • John Jay June 28, 2011, 2:08 pm

    Roger Erickson,
    I agree about China and fiat currencies in general, however, China has done a masterful job of growing their economy and creating jobs, they are now preparing to market their own commercial airliner in a few years, the C919. They are making friends and securing resources and customers around the globe, while we are busy overthrowing governments and making ourselves more hated by the day. To paraphrase the old saw about Germany pre WWII, we are now an army/corporation with a state, China is a state with an army. Very different priorities between the two of us.

  • roger erickson June 28, 2011, 2:06 pm

    Another perspective on why the entire euro crisis is deadly silly. Many good points here.

    http://www.stratfor.com/weekly/20110627-divided-states-europe

    Why a “more perfect union” is the only defense.

  • Roger Godberd June 28, 2011, 2:06 pm

    Unfortunately no US politicos have the backbone required to let the pain play out. Unfortunately it is the only way out of the mire. The same thing is playing out in Europe with Greece/EU. It is all a farce. Let it go so we can at least salvage something and then move on. The way the govts are going now we are looking at general worldwide economic collapse and disaster.

  • Alex G June 28, 2011, 1:49 pm

    I’m all for technical analysis but can it be trust worthy in a manipulated market and absent of whats going on with Open Interest and registered Silver at the Comex?
    Quoting Harvey Organ regarding yesterdays activity at the Comex:
    “The open interest instead of plummeting, rose by 674 contracts as no silver leaves fell from the silver tree. The front options delivery month of June saw its OI revert back to 10 contracts from 12 despite no deliveries.”
    The price of silver has fallen but there is a large amount of contracts that stubbornly stand for delivery.

  • Roger Godberd June 28, 2011, 12:39 pm

    Everyone is now bearish on silver/gold and will therefore miss the massive rally that is just about to begin. The hedge funds are about to pile into the pgms and the launch of the new Pan Asia Gold Exchange with a daily gold fix in Renminbi will put a leash on the CRIMEX. About time too after waiting for the wet farts in the CFTC.

    We are teetering on the edge and more QE is just around the corner.

    Get long now is my take.

    • roger erickson June 28, 2011, 1:55 pm

      Most – even the FED – are realizing that the prior QEs did squat, so why would they keep trying?

      Without some serious tax cuts for workers & those waiting to work, and/or public initiative, we’re toast. Cue Will Rogers: “Even if you’re on the right track, you’ll get run over if you just sit there.”
      http://www.brainyquote.com/quotes/authors/w/will_rogers_2.html

  • Marc Authier June 28, 2011, 12:09 pm

    And then spanish bloody gory corrida bull fitght and Irish IRA explosive fireworks at Anglo Irish, and to top it of poisonous portugese sherry hangover. I really don’t think that silver will have problems like you imply. And if it does, so will ALL other assets, US dollar and US treasury bombs included. California beach boys going bankrupt at the same time. So will New-Jersey, Ohio, Illinois, a couple of hundred US cities. And why not the FED. Hell. I prefer physical silver to think of it, even if it goes down 10$ !

  • mario cavolo June 28, 2011, 12:05 pm

    after reviewing a few key points and the chart, I just also took a small long in platinum. At this point and chart support-wise, its already quite further “liquidated” compared to gold right now…worth a comparison…

    Cheers, Mario

  • Marc Authier June 28, 2011, 11:00 am

    Followed by italian spagetti party.

  • Marc Authier June 28, 2011, 10:52 am

    The US dollar is hot hot hot hot. Just kidding. Big fat greek wedding still in progress.

  • John Jay June 28, 2011, 6:14 am

    Link to the best explanation of the global debt situation I’ve come across.
    http://tinyurl.com/3nuu2er
    As for Silver, I agree $32 is the big test of support. If it goes below that, we will all be looking for an entry point. However,nothing has changed, TPTB orchestrated the PM deflation, temporarily at least. And the world unrest is getting worse. Turkey and Syria are massing troops on their border, and Turkey is still a NATO member, and Iran backs Syria. Could be a mess, but might drive more money to Treasuries.

    &&&&&

    This is terrific, John! I’ve linked it from my home page. Thanks for the contribution. RA

    • A. RandFan June 28, 2011, 6:57 am

      John Jay, That is one of my favorites from those guys. As to the question of where the bailout money will come from. Here’s the answer. http://tinyurl.com/3tewlcz
      I agree, Big Money has taken control of the silver market, at least until the TSHTF.

    • roger erickson June 28, 2011, 1:47 pm

      Amusing, but illustrative of the superficial thinking that led to this amount of confusion, complacency & hence fraud.

      Slow witted people are just waking up to the fact that almost the entire world, even China, runs on fiat currency. [Exception is the euro system, where the ECB dictates how much fiat each member CB can supply to populations wanting to denominate zillions of transactions. Euro countries are screwed, for starving populations of adequate currency, no one else is similarly constrained, but some are acting like it.]

      No one “gets” their own fiat currency from anyone else, that’s what the word means. There is literally no one else to get it from!! It’s no different from drawing up contract sheets, IOUs, or bank checks. You can’t run out of those, so why worry about running out of fiat currency?

      Nor do fiat debts have to be paid back by an issuer. When you have this many people all wanting to make distributed transactions, there’s no way to control the money supply. You have to let it follow public initiative, by letting the money supply float – which means that momentary currency value also must float.

      That simply means that you should OWN real things and USE currency. Nothing earthshaking in that.

      Any central planning of currency supply won’t scale to the size economy we’ve grown since 1933.

      The solution is to suck it up and shift the bulk of responsibility to regulating fraud and misuse. We did that pretty well from 1933 up until Rubin-Summers-Greenspan put the finishing touches on allowing rampant corruption through Control Fraud.

      Now we’re back to trying Central Planning of fiat currency supply – an oxymoron if ever there was one. That’s the ultimate marriage of capitalist frauds with communist thinking. It’s devilishly brilliant, but only for Geithner/Madoff & his cronies. And it works only on sheep-like populations clueless about how a scalable monetary system works.

      We’re making making mountains of fiat debt out of molehills of ignorance.

    • Cam Fitzgerald June 28, 2011, 3:07 pm

      Loved the video John. It does leave us to wonder when the European Central Bank will simply resort to printing to paper over the whole mess. They really will have little choice in the end short of a community default.

      The even bigger question then is what is the outcome of all the worlds biggest economies printing simultaneously. For example, it seems certain that Japan will monetize debts at some point in the future, the US is already doing it, ECB is headed in that direction and last, if the Chinese peg remains then they will effectively devalue too as the dollar begins its next slide lower.

      Do we now have a setup for a currency race to the bottom amongst the big economies? I think so. We have seen this picture before. My conclusion can only be that the future for Gold, Silver and other precious metals is stellar, that the commodity bull is nowhere near complete.

      Good calls on short term metal prices Rick. Your numbers are similar to my own. I will add though that it is my belief that PM’s will be headed much higher beginning in the fall. Given all the headwinds of a slowing global economy and the debt burdens that are drowning most Western nations right now it is impossible to believe that any other course of action is plausible if Japan, the EU, US and China are going to keep the system functioning.

      It could easily go on for many years too as the debt overhang is slowly extinguished but we will all be the poorer for it as buying power is robbed through policy decisions.


Exit From This Page Back to Trades