SEATTLE (Silver-Investor.com) -- What a week - might think of it as a weak week. Enough of my poor humor. Silver was hammered on Friday December 15th down 98 cents. Gold sold off as well. Right now gold is holding above the 50 day and 200 day moving average basis the continuous contract.
If gold is pushed down below these two critical moving averages we can anticipate that the mechanical trading funds will go from being long to going short (selling their positions). This is not guaranteed but our experience provides a good probability that this will be accomplished.
What to expect now? First margin calls will go out on Monday for silver longs to cover their positions this will put further pressure on silver and the path of least resistance will be to the downside. Normally these types of quick breaks last a short time before the market settles down and begins to build a base again.
If we are correct and silver sells off further then gold will most likely sell off further as well and hit the critical averages and may increase the selling pressure.
The mining equities held up fairly well on Friday considering what took place in the metals. The mining shares usually lag the metal on the downside and often lead on the upside so keep a keen eye out.
In this market it is always best to buy on dips but we would suggest staying calm and watching carefully. With options expiration about one week away we can anticipate further downside pressure. This is almost always the case as the professionals write tons of options sucking in the "super bulls" and scalping them at the last possible minute.
With the low volume and end of the year the swings in the market are wider than normal. At this point we would consider good long term entry points to be with gold under the $600 level and silver near $12.50. We expect to see more pressure on the mining shares as the professionals square their books by selling losers to offset gains in other areas.
Will be leaving shortly this morning on a long road trip through some snow covered mountains to tour a mining project. We are working hard on the January issue for you and this will be an oversized issue packed with information and insights for the New Year.
Copyright (c) Silver Investor 2006
David Morgan is Editor of the e-mailed newsletter "The Morgan Report," issued on a monthly basis and includes economic news, overall financial health of the global economy, currency problems ahead and the reason why people need to be invested in the precious metals. His website is www.silver-investor.com.
