Silver receives “bear market” label

Tentative rebounds in precious metals took place during the overnight hours as a bit of dollar softness brought out a few bargain hunters in the physical markets. Talk that a Portuguese bailout had been endorsed by European finance officials and that Greece might be offered some type of “soft” restructuring deal bolstered a few additional bids in gold, but the yellow metal was as yet unable to firmly reestablish itself above the $1,500 mark. Following the past two weeks of aggressive selling, questions continue to swirl around in the market regarding where prices might be headed next, and why.

For the moment, this morning anyway, prices headed a tad higher in the complex. Spot gold started the New York trading session with a 50 cent-to-$1 gain and a quote on the bid-side at $1,491.00 per ounce. Silver traded at $33.91 the ounce, showing an 18-cent rise in value. Platinum rose $13 to open at $1,766.00 while palladium showed the morning’s best percentage gain, rising $5 to the $714.00 per ounce mark.

“Playing” conditions appeared less than comfortable for any aggressive betting, however, as crude oil continued to manifest on-going weakness (at just above the $97 per barrel level) and the US dollar remained near seven-week highs in and around the 75.6 value peg on the trade-weighted index. Reflecting precisely just such tentative conditions, gold spot slipped into negative territory (losing $15 to $1,475 the ounce) within the first twenty minutes of trading action. Whether or not the poor April US housing starts figure was to blame, or whether it was the shrinking confidence in the global economy by business managers, the net results were the same; risk appetite took a hit, and with it, so did gold and silver as well as crude oil (by the most in percentage terms).

But, wait, there’s more. More, as in there is a possibility of some sizeable gains to come in gold and silver if certain patterns of historic market behavior still hold true. Elliott Wave analysis disseminated late on Monday indicates a potential short-term “pop” in coming days; one that might carry the yellow metal to somewhere near to the $1,540- $1,545 area. That said, the larger trend that EW sees still points lower and it offers the probability that most “surprises” could be to the downside. This, despite headlines (such as a very recent one in the Wall Street Journal) that conclude that albeit “silver may be “done” gold will continue to gain, so do not worry.”

As for silver, the EW team notes that wave analysis offers a realistic chance of the white metal also “popping” to higher ground; perhaps as high a ground as the $39-$43 price channel. This, as prices have already retraced 50% of their entire rally from the $14.63 per ounce low seen in February of 2010. Were silver to break the $32.30 low recently touched, well, it might then show further weakness in coming sessions. The white metal remains a danger-laden minefield for the longs or the shorts as the turbulence that started on May Day pretty much lives up to conditions that often elicit that famous aviation distress call. At any rate, no one is quite clear on where things are headed next in this niche.

There is no absence of hindsight on display these days however. To be fair, the hindsight was on offer from a source that also offered foresight in retrospect. After noting that silver’s “purchasing power” has fallen by 30% or more in two weeks, Minyanville quantitative analyst James Debevec has applied the “bear market” label to the white metal. No “correction” this, concludes Mr. Debevec.

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