Silver And Gold Are Breaking Down

 |  Includes: DGZ, GLD, SLV, ZSL
by: Scott Gibson

As the prospects for the euro darken and the dollar strengthens precious metals appear to be undergoing another correction as I forecast in “Precious Metals: Fundamentals and Technicals Show that it’ Time to Sell” November 25. The daily high-wire maneuvers in Europe are causing investors around the world to seek safety in the dollar, which in turn is fueling a rally in treasuries. And when the dollar rallies precious metals drop.

If the past is any predictor of the future, the next move for both silver and gold will take them down to 2 standard deviations below their long-term (multi-year) regression lines. For gold this is a price around $1500 - $1550 per ounce and for silver a price of $20 - $25 per ounce. Although the prices of both could drop lower than these targets as markets tend to over correct in a sell-off.

On Monday, December 12, both silver and gold gapped lower at the open dropping below trend lines that have acted as price support for both since September 26. This can be clearly seen on the chart of silver below:

(Click chart to expand)

Click to enlarge

Recommendation: As I pointed out November 25, buy ZSL or DGZ and or short GLD and SLV. ZSL is an Ultra (Double) Short Silver Fund. DGZ is a Short Gold fund. Unfortunately, there is not a fund that only shorts silver; you have to use a double leverage fund so use stops with ZSL if the market starts to rally against the trade.

Disclosure: I am long SLV, GLD.