Silver: Is This The 'Last' Decline?

by: Avi Gilburt

In short, probably not. And, it still seems that the low for this decline has not yet been hit either, but we are very close.

But, that does not preclude us from seeing a sizable rally about to take hold in the near term, after we do hit our bottom around the corner. Yes, you heard me right. I am expecting a rally that can take us as high as the 26-27 region, still. But, the question will be if it is a rally which will be the start of the rally to new all-time highs, or simply a corrective rally setting up a final short trade into the final bottom sometime late this summer or early fall. At this time, I lean strongly towards the latter.

Last week, I noted that the potential existed for the market to head to the 26 region sooner rather than later. Clearly, when the market took out the support I mentioned last week, it invalidated the potential for that rally, and allowed the market to test the lows once again. But, this is why I said that I did not have a lot of confidence in that potential, and was not suggesting it for a trade. Rather, it would have been a nice short trade set up. But, it was not to be.

As to the question to which I always return regarding what really moves the metals' markets, I did my weekly perusal of Seeking Alpha articles, and found a very interesting article written by Robert Wagner - no, not the actor. In his article, he focused upon the common misconception that gold will rally based upon additional QE from the Fed. He concluded that many are only now realizing that the Emperor has no clothes, as it relates to the metals and QE.

However, I have been saying this for the last two years during which I have been writing for Seeking Alpha. Yet, until recently, everyone seemed to be wearing blinders to this fact. Everyone was so sure that QE was going to lead to new market highs, just as everyone used to be so sure that the earth was flat. Well, folks, the earth is round, and QE does not cause metals to rally.

However, it does not mean that Mr. Wagner or others have figured out what moves these markets just yet. Rather, it just shows me that they have taken one common misconception about what moves metals off the checklist. But, do not fret, there are still many more to which most cling.

So, while I give credit to Mr. Wagner for recognizing that no amount of QE will cause the metals to rally, he mistakenly believes, as do others, that investors view "gold as a safe haven investment," and that is the only factor that will cause gold to rally again to new heights. Well, in articles I have written before, I have shown that during certain points within the European debacle, there were times in which most expected investors to run to gold as a safe haven, which was never seen in reality. But, yet, Mr. Wagner and others still espouse this common fallacy as well.

Ultimately, as more and more layers of common perception of metal drivers are peeled away and shown to be false perceptions, eventually, investors will come to realize that it is sentiment, and sentiment alone, which will cause the metals to move up or down. However, based upon Mr. Wagner's article, it seems that we will likely have to disprove each and every one of the common fallacies before authors, investors and the media will come to recognize the true mover of metals, if they really ever will at all. Personally, I will not be holding my breath.

Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.