But even though last week's update was replete with reasons why the selloff in precious metals is very likely to reverse and the bull market resume sometime in the not-too-distant future, that isn't necessarily to say a bottom is now in place. In Elliott wave terms, last week's rally could very well have been a 4 of C consolidation before the final lows. And there is some technical evidence to support this idea.
Both gold and silver failed to take out a key support/resistance level just above Friday's closing levels. Neither managed to have their rallies confirmed by MACD, which actually widened negatively in both cases. And, whereas gold is poised for a bearish crossover over the 50-week sma over the 5-, silver has already done it. Both gold and silver remain well below their 5-week moving averages. If this is the beginning of a new leg to the bull market, there's still lots of work to do before we have anything approaching confirmation.
Readers who lightened up on their precious metals positions this year and who started legging back in last week, will probably wind up with a profitable position in time. And assuming physical positions are long term propositions, one more opportunity to buy at washout lows might actually be appreciated. If that's the case, silver could have a $10-handle before the selling is done; gold could go under $700. But just as we don't have confirmation of a bottom, there's nothing to suggest such a deep new leg down is necessary either, unless, perhaps the financial industry and the economy are suddenly and miraculously saved. On the contrary, anecdotal evidence concerning tight physical supplies of precious metals suggests such a washout is probably unlikely. What short term traders should be most concerned about then, is a retest or slight poke below the last lows. If that were to occur and a significant reversal to follow, we'd be a lot closer to sounding the all clear.
