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Precious Metals Correction Still A Technical One

|Includes: CEF, GLD, SIVR, iShares Silver Trust ETF (SLV)
aaronbasile.wordpress.com/2011/01/24/precious-metals-correction-still-a-technical-one/

I called a bottom in Great Western Minerals (OTCPK:GWMGF) on the 18th and forecasted that it would immediately make a run on the resistance level of $.70. I didn’t think that it would demolish that resistance, but it did just that and today it closed up another 10% at $.83. Still stock still has a lot of catching up to do and there is still plenty of time to get in.

The lower trendline is right in line with the 20 Day MA. Any pullback should find support there moving forward. There are several overbought indicators here but the volume overwhelmingly supports the move.

Silver is still getting hammered as it lost another $.51 today on average volume. The daily chart for SLV tells me that this afternoon one traders offloaded 75K worth of shares in the ETF which caused a second wave of selling late in the day.

We have support here and the oscillators are indicating that a bounce off of the current lows is in order. I think that this may only be a short term bounce but I am convinced it will happen nonetheless. This support is not invincible and if it breaks, I don’t expect $25 to fail, if anything the bottom will be there.

Same story with gold, very oversold in the short term and we should see a bounce here.

I stand by what I said last week, $1325 is the bottom based on the long term trends that date back to the 2008 crash. If this support level fails then you could say that gold’s long term structure has changed. Unless the market is ignorant to this statistic, in which case $1260 is support and an epic buying opportunity.

The underlying issue here however is that this correction is a technical move, not a fundamental move. There are plenty of explanations – “weak hands being scared away” is something I’ve been hearing. I agree with that because when you see the mining companies get hit considerably harder than the spot prices, it shows us that speculative money is leaving the market, or in other words, those who are not committed to the long term trade. Another thing I’ve heard from the likes of Peter Schiff and Bob Chapman, is that the trend as of late has been long gold/short euro, and since the euro has gained strength, people have begun to cover short euro positions and close long gold contracts. Another explanation is simply that the market needs to take profit to realize gains. Either way, what concerns me is not the reason behind the correction, but the large amount of bullish news that has been coming out despite the slowdown in prices.

Examples include: The Chinese cutting silver exports, the amount of short covering in the COT reports, Russia claiming that they will buy 100 tonnes of gold a year, or the US mint having a nearly record setting sales month for Silver Eagle Coins.

It is my opinion that the above articles that should provide bullish momentum are currently contradicting price activity in the metals markets. I believe that this means that the more that the metals consolidate with this type of news going around, the harder and sharper the buying pressure will come back. This may go down as one of the best dips that we’ll have a chance to buy gold and silver when it’s all said and done.