Expect Vicious Bullion Selloff to Be Short-Lived

By Rick Ackerman on May 5, 2011 1:41 am GMT · 18 comments


Although some technicians we respect think bullion’s correction will stretch into summer, we think it will be over within a week. In our experience, powerful bull markets recoup violent selloffs with rallies that are just as violent. Silver’s correction has been violent indeed, savaging quotes by 25 percent in just a few days. The catalyst for this brazen shakedown was news Sunday night of Osama bin Laden’s death. Who needs bullion when the world is about to become an oasis of peace, right? Yeah, sure. When the revelers return to their senses the world will still be a dangerous place, the central banks will still be printing money by the trainload, and nothing will have changed to diminish the defensive appeal of precious metals.

Under the circumstances, we doubt that Silver will need much base-building to launch an assault on the supposed $50 “barrier.” We view that number not as impenetrable supply, but rather, as a fat carcass waiting to be picked clean by voracious buyers. Let J.P. Morgan and their ilk try to hold the line at $50. They’re going to be dead meat eventually, so why not now? In our years of experience on the trading floor, huge supply tends to coax forth huge demand. As traders like to say, opportunity moves to size. And while the bad guys may have deep pockets and the ability to create tons of “paper bullion” at will, any suspicion that they are trying to cap Silver at $50 is going transform otherwise docile, go-along buyers into aggressive opportunists. This will prove to be equally true for Gold, we are certain. The Chinese government, for one, has given its blessing to any citizen who wants to buy the stuff. Want to stand in their way?


From a technical standpoint, July Silver, currently selling for about 39.260, looks like it still has a ways to fall. To be precise, we see a turn from exactly 37.165, a “Hidden Pivot” support identified by our proprietary method of technical analysis. (Click here for detailed information.) However, if that support is breached on a closing basis, we’d infer that still more weakness awaits to as low as 35.390. Whatever the case, we’ll be speculative buyers at either number, using the “camouflage” entry technique that hundreds of Rick’s Picks subscribers have learned by taking the Hidden Pivot Webinar. With regard to Gold, look for the June Comex contract, currently at 1518.20, to turn decisively from exactly 1491.80. If the rally out of the hole is as strong as we expect, you’re going to see bears diving for cover by week’s end or early next.