Abigail Doolittle | Mar 10, 2012 11:33PM ET
It’s been nearly a year since the 35% correction in silver last May and almost six months since the 40% free fall in silver last September, but it seems that yet another aftershock drop to 2011’s parabolic climb may be on the way yet.
More worrisome, though, is silver’s current and confirmed Rising Wedge in blue with a target of about $26 per ounce and a pattern that could begin to take silver down any day now or may hold off for another week to few weeks in sideways trading between about $32 and $36 per ounce before that decline is made.
Supporting such a potential correction is the Descending Trend Channel itself that suggests silver will probably find support at its bottom trendline between $22 and $24 per ounce and this should be seen as a very real possibility unless silver climbs above about $40 per ounce.
Perhaps the impetus for this potential plunge in silver will be next week’s FOMC meeting when it will probably be reiterated that there will not be a QE3 in the near future unless clear signs of deflation were to become apparent in the form of a stock market correction and/or a narrowing spread between Treasurys and TIPS.
In turn, such possible messaging might shake all of speculative precious metal bugs out of what has been a very rewarding tree at times to leave behind the hard core metals people for gold appears ready for its third corrective phase as well even though the past timing particulars are different.
Pointing to this potential decline in gold is the fact that gold is back below its very important and historically very supportive 150 DMA and this sets the backdrop for gold to trade down and perhaps significantly so.
This sort of an extreme decline should be taken seriously, too, unless gold rises above $1,812 per ounce or so.
Should the Symmetrical Triangle in gold win out, it equals a potential decline of 34% from current levels and a bit more in-line with the type of drop that may take shape in silver and it is for this sort of possible correction in gold and silver that provides good reason to believe that a precious metals plunge part III may be about to take place.
Sam’s Stash, Gold and the S&P
Not surprisingly, gold’s Descending Trend Channel of recent months is a shorter inverse of the Ascending Trend Channel in the dollar with gold’s Symmetrical Triangle suggesting that gold and the dollar may begin to trade toward each other again in the context of this long-term weekly chart.
In turn, the more speculative gold bugs, the non-gold, guns and God gold bugs, will likely be shaken from the great golden giving tree leaving the more hard core sort behind.
What makes this possibility most interesting, however, even though it would not show itself for years most likely is a long-term trend reversal in gold and the dollar with gold appearing vulnerable to a reversal to the downside and the dollar looking ready to try to reverse its long-term downtrend.
Overall, then, the chart of gold and the dollar together supports the possibility of some sort plunge in the precious metals to come.
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