Silver: From the Toast of the Town
to Major Correction Mode
Only a few weeks back, silver was the toast of the town. The metal used in numerous industrial and electronic applications had been on a nice run-up since early February when the July silver futures contract was trading below $28.00 per ounce.
The climb was steady, but at the same time looking overextended and largely driven not by world supply and demand metrics, but by speculative trading.
But the floor for silver has collapsed. The failure to test $50.00 was bearish and led to speculators selling and taking profits. It has been a terrible few days for the July silver, as the contract broke below $40.00 and is down 24.52% from its 31-year high of $49.85 reached only recently on April 25. So, in a matter of just over a week, silver has fallen through the floor. Silver is bearish and remains extremely vulnerable to selling in the near term.
I sense some nervous trading and a potential correction lower, as the July silver has broken below its 50-day moving average (MA) of $38.85. I hope you took some profits of the table, as the gains in silver were clearly not sustainable in the near term.
Gold is a different story because it is considered a safe-haven play, while silver isn’t. Investing in gold is a safe-haven play when the overall market risk rises.
Gold has rallied in each of the last 10 years, and it shows a beautiful bullish price chart. My gold advice would be to accumulate gold on weakness.
The June gold is down 4.5% from its record high of $1,577.40 on May 2. We are seeing some profit-taking, but the June gold is precariously holding above $1,500.The contract is above its 50-day MA of $1,455. The bias remains bullish. Gold remains overbought.
The investment climate remains ideal for gold. The conflict in Libya continues. Terrorist leader Osama bin Laden was just killed by American Navy Seals, but now there is a threat of payback from his terrorist cells around the world.
Japan continues to clean up from the horrific tsunami. The damage could impact the country’s economic renewal.
Europe continues to show slow growth and there are breaks within several European Union countries, including Portugal, Greece, and Ireland.
Inflation is rising in China and India, with interest rates ratcheting higher.
Oil is trading at over $100.00 per barrel and this will impact global economic renewal.
Also don’t forget about the mounting debt and deficit in the United States. The country has over $14.0 trillion in debt and is paying billions in interest daily. Many states are struggling to make ends meet and are looking at severe cuts in the state budgets.
In the current climate, gold is the best bet, while silver continues to be a trading commodity.