(GC) Gold, Silver Engage Critical Dec Lows, Generate Historic Pessimism; Something's Gotta Give

Technicals, May 16, 2012; 8:15am

The important by-product of yesterday and overnight's continuation of the clear and present downtrend in gold prices is the market's definition of recent corrective highs at 1564.4 and 1602.2 detailed in the 240-min chart below. Given the market's engagement of Dec'11's pivotal 1523.9 low and prospective support, these levels define the important short- and longer-term parameters around which to manage the risk of a bearish policy. In lieu of strength above at least 1564.4 and preferably 1602.2, the trend is down and should not surprise by its continuance or acceleration.

The daily log (above) and daily log close-only (below) charts show the market's approach to Dec'11's key 1523.9 intra-day low and 1540.9 low daily close, respectively. If there's a place from which a surprise bounce or reversal could stem, it is here. And hence the importance of the risk parameters mentioned above. Needless to say, a clear break below the Dec lows reinstates a major correction or reversal from 06-Sep-11's all-time high of 1923.7 that could produce steep losses straight away.

The weekly log close-only chart below shows the importance of late-Dec's 1567 low weekly close, the break of which would expose the new long-term trend as down. This said and in an attempt to remind traders of the magnitude of the secular bull trend, Dec's 1567 low is only the Fibonacci minimum 23.6% retrace of a suspected 3^rd-Wave rally from Apr'09's 868 low to last Aug's 1877 high weekly close. The inference here is that even with break below Dec's obviously pivotal low, the decline from last Aug's high remains well within the boundaries of a secular bull-market correction. And such a long-term bullish count is important to keep in the back of one's mind given the understandable drop in the Bullish Consensus measure of market sentiment (www.marketvane.net) to its lowest reading (52%) in over eight years and one that, in the past, has accompanied major corrective lows and buying opportunities.

These issues considered, a bearish policy remains advised with strength above 1564.4 required to threaten this view and warrant shorter-term traders with tighter risk profiles to move to the sidelines. From a longer-term perspective however, strength above 1602.2 is required to expose a larger-degree base/reversal threat sufficient to require longer-term traders to also take defensive measures. In lieu of such strength, further and possibly steep losses remain expected.

The technical condition and forecast for the silver market is virtually identical to that detailed above for gold, with a recovery above recent corrective highs and risk parameters at 28.43 and 29.455 required to threaten or negate a continued bearish tack.

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