Tuesday, July 19, 2011

Gold and Silver Morning Update

What a day for both gold and silver yesterday! Silver regained $40 topped the Google trends list, and most importantly, HKMEx announced the launch of silver futures.
Silver also closed above $40, which as we stated yesterday, was important technically.
Silver has sold of slightly this morning, but the $40 level is holding for now. There are large amounts of shorts who will capitulate and cover if silver begins to move up off of the $40 level. The move from $33 to $40 has been viciously quick, and the shorts are bleeding.

To give you an idea of how fast this move has been, The Doc purchased silver from his normal dealer (who ships silver as soon as payment clears) at $33, and its scheduled to be delivered today. Thats a 23% move from the time The Doc made his purchase! Typically silver is within $1 to $1.50 of the purchase price when its received.
Those on the wrong side of this move are bleeding profusely.  To make matters worse (for the shorts), a large number of traders and funds have stepped out of the silver market temporarily, waiting for a clear sign that the bull trend is back before re-entering.  Consecutive closes above $40 will be enough to convince these funds to leave the sidelines and rush back into silver. If Blythe cannot muster a serious take-down or margin hike this morning, we could be looking at a rapid (and I do mean rapid) run to $44-$45 as shorts are forced to cover, and funds currently on the fence rush back in to silver. 

Live 24 hours silver chart [ Kitco Inc. ]

Gold also has been impressive, setting a new nominal all-time dollar high yesterday, and closing above the critical $1600.  Gold has corrected slightly this morning as well, but like silver at $40, the round $1600 has held thus far.  We would still be surprised if there is not a re-test of $1577 at some point, but gold's ability to close above $1600 and hold that level indicates it wants to move higher from here. Look for resistance at $1615-$1625, then $1645-$1650.  Sinclair is calling for gold to fly right by his $1650 angel all the way up to $1764.   James Turk is looking for an even bigger move from here (up to $2,000).
Personally, we expect gold to get a very temporary respite next week when Congress compromises and passes the debt limit extension at the last minute. 
Gold should continue to move in Euros and pounds as the euro crisis continues to worsen, and the UK bond sell-off intensifies. 
We'll leave you with a weak attempt at some humor this morning...
With the UK now entering the debt crisis, ratings firms threatening to downgrade the US, and France entering the picture as the end-game Euro domino...The Doc has come up with a suitable acronym to welcome the newcomers to the debt crisis:


Live 24 hours gold chart [Kitco Inc.]