More Pain For Silver

With yesterday’s slide below key medium-term resistance in the price of silver, judging by the media attention, the sell-off seemingly took more than a few players by surprise.  As I pointed out yesterday in my take on gold here ( the charts for both metals do not look good for bulls, at least not for the longer term.

Allow me to walk through a few charts that hopefully give more perspective on the potential near and long-term fate for silver.

The complete disconnect between stocks, in this case the S&P 500, and silver/gold kicked into high gear towards the latter part of January.  Stocks, all  bulled-up about improving macro data ramped higher while silver and gold slumped.  Please read the previous sentence again, as it is important.  Off the 2009 lows the general theme was asset class inflation as central banks pumped money into the system, forcing investors to buy equities.  All the while gold and silver however also rose sharply as investors doubted the economic recovery.  This ultimately led to a bubble in both silver and gold that as mentioned above, stalled out in 2011.  The  sell-off in silver and gold over the past two months however came as a result of better economic data that investors actually believed in.  In other words, an improving economy is putting pressure on save-haven assets (aside from Treasuries), which as a general theme, barring a renewed major recession in the coming 12 months, should keep silver and gold from making significant bull runs and over time continually slide lower.

On the next chart below I plotted the iShares Silver Trust (NYSE: SLV) in red and SPDR Gold Shares (NYSE:GLD) in blue, dating back to late 2008.  The two charts look remarkably similar; both had a steep multi-year rally from 2009 to 2011, followed by downside consolidation that has now brought them to multi-year support levels.

Closer up on the chart of iShares Silver Trust (NYSE: SLV) we see that it is now within arm’s reach of the June 2012 lows (near $25.30), which marks the horizontal support point above on the multi-year chart.  While silver doesn’t necessarily immediately have to blow through this multi-year support level, chances are that it eventually will and when it does won’t find much useful support below for at least another 10% – 15%




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