Are Silver And Gold Ready For New Lows?

 |  Includes: GLD, SLV
by: Avi Gilburt

I have to say that the best part of the articles I write seem to be the comments we get week after week, so, I have to thank the many of you that post.

Along these lines, one of you asked me to tell you "why the soaring demand for gold in India and China is bogus (it's not declining)." Another commenter requested that I "please explain how silver can lose half its value when demand for silver has only INCREASED since 2011, and supply is flat at best, and you have the us mint restricting (allocating) sales? Please explain this because this just doesn't compute."

Well, it does not compute because it is not meant to compute. Let me ask you a question: If demand has been rising, according to most, for the last three years, yet price keeps falling, would you not come to the conclusion that such demand is not what is moving prices? Or will you simply keep claiming that demand is rising so prices will "eventually" rise!? This "eventuality" has taken 3 years already (with 50% losses in silver) and is still not ripe to change the metals' direction. (And, no, I am not even going to discuss the "manipulation" theory any more than I will discuss Area 51 in this article.)

Many of you still believe that you can use logic or reason to figure out where the metals are headed. That line of thinking has helped you about as much as trying to reason with someone who is hysterically emotional. You are speaking two different languages and will never be able to effectively communicate.

I would love for someone to explain the logic in this perspective to me. The argument goes like this: The fundamentals of a market drive the price for that particular market. The majority have viewed the fundamentals of the metals market as exceptionally strong for the last three years, and many even claim that they have gotten even stronger. Yet, price continues to decline? So, have you ever questioned if the fundamentals were really the driving force behind the price in the metals? But, most of you still hold strongly to the perspective that they will control the price "one day."

Folks, if the fundamentals of a market are not in control of the market all the time, then they have never controlled the market at any time. And, if price eventually heads in the direction in which the fundamentals dictate, then the fundamentals are only coincident factors to the price and not the driving or controlling factor.

I mean, why is this not like the broken-clock syndrome? When the clock is stuck on noon, you look at the clock at noon and come to the conclusion that the clock is working? Worse yet, the argument that the "fundamentals will eventually be controlling" is like when you look at the clock at 3pm, and then claim that "the clock will eventually be working when we get to noon."

If markets were driven by the reason or logic of fundamentals, would we not all enlist the services of a logician to assist us in making money?

Now, one of you posted something that tells me you are possibly on your way to understanding how the metals market works. We just have to take you to the next "logical" step. "Prices/markets may seem to be irrational or illogical but that is only due to our inability to detect those factors driving the markets/prices." Yes, this is it. Prices are irrational and illogical. Prices are driven by "emotion" or "sentiment" rather than by logic or reason. And, if you are willing to understand this concept, then you will be able to "detect those factors driving the markets/prices."

Last weekend, I provided you with the following warning ahead of time:

While I will not go into the details of what I see and why I view it as such, I will say that the structure of the rise, thus far, has me quite concerned that this move higher can end much sooner than many expect. So, I have suggested to my subscribers at to move stops up on their long positions this past week, and we will be looking to take profits on most of our positions on the next move up in the metals. As for now, the targets I have for the next move is within the 22.50-23.25 region in silver futures, and the 128.75-131.50 region in GLD.

So, when we got into the target area for GLD, I cashed in most of my short term long calls. But, the market has still not confirmed that a top is in place, despite the strong reversal we have seen in silver. Yet, when we trade within a corrective rally, I have always been cautious and will often take profits at the first signs of weakness. So, I may be a bit early at times and this may be one of those times.

For now, neither the silver or gold market have provided any confirmation that the top has been struck. Silver is the closest at this point in time, and needs another decline to the mid 20's and GLD has to break 125 to signal that a local top has been struck, and that we are on our way to new lows. But, even if silver does provide the decline to the mid 20's, it will only set up a corrective rally back up to short. And, until such time, there is still potential for the metals to head to higher levels before setting up the next decline phase to lower lows. So, the early part of next week will be very important.

In silver, the main turning point of resistance I see is 21.75. Through that, and I can see us attempting another higher high. However, if we are unable to move through that level, and take out 21.10 strongly, then that will set us up for a trend reversal signal, and I will be looking to short the next bigger bounce.

Ultimately, I can see GLD hitting the lower end of the higher targets we have been noting for quite some time. But, I think that the risk has greatly increased on the long side. As for silver, again, I am still questioning if we can even see 24, much the less 25-26. And, again, the risk has risen on the long side.

Lastly, for those that follow the COT data, you will note that the commercial traders are starting to think like I am at this time, and are looking for a top in this region to short. They have clearly increased their short positions over the last weekend, and those that believe they control the markets have likely taken notice.

One final note. It is clear from some of the comments and misstatements of my positioning at various times that many of you are confused as to how I trade in the metals. And, due to this confusion, I will now only be posting my perspective on trading the metals on Unfortunately, based upon the clear misunderstanding of how I trade the metals, I do not want anyone getting hurt if they really do not understand what I do.

Ultimately, what I do is trade different wave degrees using different dated options, which means I can have 3 positions open on a metal at any one time. This means I could be in a day trade long, which closes out very quickly, while still maintaining a week, month or several month long intermediate-term short position, while at the same time accumulating very long term positions on the long side. Again, it is all based upon the wave degree that I am trading. But, since it seems that many misunderstand what I am doing, and rather than have someone think I am trading a certain direction when it may have only been for a day or week long trade, I am going to stop posting those perspectives on Seeking Alpha, and simply let you know what I am seeing.

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.

Additional disclosure: I am also building an intermediate short position in GLD