I have received several inquires as to my thoughts on gold & silver recently so I figured that I would just share my reply to one of the questions (bottom).  I’ve also updated the charts on the main currency pairs that I have been focusing on lately, the EUR/USD and USD/JPY, which collectively account for over 71% of the performance of the $USD index.

In this post on the $XEU (Euro Index) just over two months ago, it was highlighted that the Euro had about another 2 1/2% downside before it reached a long-term support level defined by the bottom of a large triangle pattern going all the way back to late 2005. The $XEU has moved lower since then and is currently within 1% of that key support level while the charts of both the Euro, Yen as well as the $USD index all looking poised for at least a counter-trend reversal and possibly more. Even if we only get a relatively mild, multi-week pullback in the dollar, both gold and silver look poised for at least a tradeable bounce. Additional notes can be found on updated charts below.

Q: (from Tuesday): SLV reached 16.09 intra day yesterday. Do you feel that was a massive short covering rally or is the 13% rise you had predicted back on the table. Do you look at open interest in examining commodities such as silver?

A: It is my belief that SLV was able to break above the 16.05 resistance level because of the very strong momentum that it had leading up to that level. I referred to it as “inertia” in my last post yesterday but essentially, SLV stopped and reversed at resistance (reversing a few cents + or – at resistance is normal).

As far as short covering, yes… I’d imagine there was a good deal of that contributing to yesterday’s rally. I read somewhere that Friday’s big drop in silver & gold was caused largely by the drop in oil (which was a result of the Saudi’s statement that they were not going to tighten the spigot). Many institutional & large commercial traders, who had actually been accumulating gold & silver recently, were forced to sell some of those positions in order to meet margin calls due to the large drop in crude Friday.

Regardless, I view yesterday’s price action as bullish but we still need to see SLV clearly take out the 16.05 level and really the 16.09 level now that it is the most recent reaction high. It doesn’t surprise me that silver is trading flat to slightly down as it probably needs to digest yesterday’s big gains, plus, it is still just shy of that big resistance level. Better if it were to digest yesterday’s gains in order to reset the very short-term overbought conditions and build up the energy to make a solid & sustained breakout. Until/unless that happens, resistance is resistance until taken out so I wouldn’t try to force any trades in silver just yet.

No, the 13% rally that I was and still am looking for is from the 16.05 resistance level up to the 18ish resistance/target level. (end reply).

Basically I’m waiting to see SLV take out that resistance as well as a breakout in the EUR/USD daily falling wedge. However, Gold has regained the key support/resistance level that I was looking for so all -in-all, I’m near-term & at least intermediate-term bullish but still “cautiously” bullish and waiting for a little more evidence to start adding to my PM positions.