Clearly the recent action in the markets has caused many to completely abandon the notion that precious metals are awesome and they now contend that they are dead and gold and silver will become the next prepper's widow maker. This may be true, and to confirm it, I wanted to examine the charts and also some of the reasons that this would be correct.... and why it wouldn't.
CHART HEADING DOWN....MAYBE
Take a look at the weekly SLV chart. Some may ask why SLV, the easy answer, is this is the one that I have saved in my stockcharts system, but very importantly, this is what you'd buy if you didn't have a safe full of silver bullion or Silver American Eagles.
In this example we see that SLV did hit near the $35.00 area that we had identified a turn and then melted lower to the $31.00 level where it bounced off it's 200 day moving average (black line). That strong bounce sure looked good, however the rebound was short lived.
Last week, the $30.00 level was breached and the etf suffered a nasty close at the $29.00 level. If you were an owner of SLV you'd have to be very concerned that a fall back down into the downward channel through $27.50 would be very, very ugly.
For those of us that hold silver in other forms than SLV, I wanted to put up the commodity silver price up so we could look and see if there were any differences in the chart.
Unfortunately, real silver is already in a downward channel and a similar level of $27.50 is very important. The close on Friday was actually odd to me in that the equity markets got spanked (if we now call down 1% spanked) while silver was up a tad.
As bad as it looks for silver, there is one shining hope left, and that is that the 14 day EMA is still above the 40 day EMA (on a weekly chart) and the slope of that relationship is still positive (flat to up to the right). As of this moment, this very long term trend indicator still has a hold on the trade and no sell has been signaled.
It has seemed like that ever since the Fed tied their unlimited QE to achieving some job employment number that all precious metals have been falling with renewed vigor. I'm not sure it that is a result of many suggesting that there is now some end on the horizon of infinite Federal Reserve action and that would somehow tame the beast of inflation that was surely expected to come. Or, perhaps traders realized that the Mayan calendar prophecy was going to fall on its face and therefore there was no need for extra stores of the shimmering metal.
Another rumored explanation for the recent vicious sell off is none other than that some hedge funds are forced to sell GLD and SLV due to redemption requests. The famous manager John Paulson has been rumored to be selling his largest positions which do include GLD. As we all know any significant move in gold will cause silver to move in lockstep with it.
In the last week, Morgan Stanley and Citibank both called on their clients and advisers to sell shares of Paulson's fund and GLD was the single largest holding at nearly 30% as of September 30, 2012 - http://www.stockpickr.com/pro/portfolio/john-paulson/ .
AN EYEBALL'S GLANCE
As I eye ball things, it also seems like the period from October through year-end is always weak for silver as well. Perhaps it is seasonal. 2011 was up significantly, so we can't say that it works all the time, but hopefully it won't be like October 2008 where silver was completely destroyed and taken down to the $8.00 level.
The real story here is that silver has some issues and you'd be smart to look for some kind of bounce at the $27.50 area. If it doesn't come, the low twenties are easily in play.