Silver and Gold Market Update
June 22, 2009
Timothy Silvers
In the last email update on 6/10, I expected further weakness in gold and silver with a likely test of support at $915-$920 for gold and $13.60-$13.75 for silver. Those levels were reached today. It is a little early to call this a bottom, although plenty of other analysts are very bullish now. Gold and silver are now trading near the 50 day moving average, which may provide support. Seasonally, there is often a precious metals rally in the summer that burns out and results in lower lows in the August to October period. I think it probable that we have not seen the lows for the year and we'll see a lower risk time to add to long positions in a few months. Short term, however, we could experience a rally that some traders might want to take advantage of.
There are some factors that could also contribute to more weakness for the precious metals. Lately, it seems that investors have been overly optimistic that the world economy will recover quickly. This led to large increases in stock markets and was a big factor in May that drove up the price of commodities, including oil, gold and silver. New economic data is leading to the conclusion that the recovery will likely take longer and be weaker than previously expected. Stock markets and commodities are now selling off and gold and silver are trading down along with them. Oil above $70 a barrel did not seem to be supported by fundamentals, so it would not be surprising to see it correct below $60 a barrel, with additional pressure to the downside for other commodities and precious metals if that ocurrs.
Another factor that could weigh on gold and also bring down silver is the still large commercial short position. The chart below shows that the commercial net ounces short (red line) on COMEX gold contracts is still near a historical high. If the offsetting long traders are forced to liquidate, it could precipitate another sharp drop in gold.
For silver, the commercial short levels are not near historical highs, but the Sum of $ Short indicator that I track appears to be coming off a short term high. Certainly, it is not near the low risk buy points like September 2007, October and November 2008, and April 2009.
Summary
We need to watch the next few trading days and see if gold and silver stabilize, continue to drop, or begin to break out to the upside. $915 gold and $13.60 silver are the support levels that will lead to further weakness if breached. Conversely, gold moving above $940 and silver above $14.30 should indicate that we are beginning another rally. I still expect that if we get a short term rally, there will be another buying opportunity at lower levels in a few months.
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Best wishes on your investing and future and God Bless,
Timothy Silvers
Disclaimer: This article represents the opinions and personal views of Timothy Silvers and is not intended to be investment advice. If you choose to use this analysis for your personal trading, Timothy Silvers assumes no liability for the direct or indirect losses you may incur due to using this article to make your investment decisions. You are totally and completely responsible for your own investments. At any given time, Timothy Silvers or his friends and relatives may have positions in silver related investments that may or may not follow the recommendations contained in this article. The information in this article may not be completely correct and accurate. Even though Timothy Silvers has done his best to review the content and accuracy of this article, he is in no way liable or responsible for any mistakes or omissions.