As the CME keeps hiking the margins on Silver Future Contracts aggressively, as Tyler has been reporting here about every day now, the price of the white metal finally gets hammered, as investors are running for the hills.
It seems like every floor for the price gets taken out at the moment! As the days go by, we are getting the feel that this is becoming more than a normal correction. It looks like the first phase of the secular bull has been completed!
As we experienced with gold breaking out of phase 1 back in 2008, it also was followed with a vicious price correction, for the top around $1,030/ounce all the way down towards $700 per oz (or even a little lower intraday): a 32 percent correction!
If history can be any guide, we could expect a similar or even more aggressive price correction for silver in the coming months. With a top around $50/ounce, this delivers a potential downside target for silver of $33.5/ounce, a 5-dollar-drop from today’s price.
The gold correction of 2008 started end of March and ended in the midst of November. If we project this time frame on the current silver correction, we will be probably see the lows by the beginning of 2012.
Of course, we all know that the white precious metal can be an aggressive beast when it comes to its price action. This means bigger drops in a shorter time frame.
Time for a look-up of the silver chart and what potential downside targets we could expect in the coming weeks/months.
This first downside target already is in place and will most likely be taken out, which are the 50MA and the 38.2% Fibonacci retracement level, that come together around $39.
The next Fibo retracement targets — 50% and 61.8% — are at $35.4 and $32 respectively.
A full Fibonacci retracement (100%) is at the last breakout of the silver price, at the intermetiade top of $21 per ounce, which would result in a 58% price crash!
Keep in mind, silver experienced similar huge corrections in the past (2008), but we think a sixty percent drop is a bridge too far this time around.
We see a good and realistic downside price target for silver laying at the current 200MA, trading at $28.2 per oz, which would result in target price of 28 dollar: a 44 percent correction from the top!
If this 10-dollar-drop for silver would take place, we think it would probably be in place already by September/October, about a half year from today.
So we repeat our advice: loosen up on your speculative positions, but be sure to keep those core silver positions in place, whatever the price correction may be!
For more of our thoughts and targets on Gold and other commodities, check out our newest release of the Commodity Report coming Monday!
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