Gold and silver both plunged precipitously on Wednesday, and both broke down from parabolic uptrends. The decline in silver was much more severe than that in gold, and more serious, as it broke down from an uptrend in force since late 2002. The break of the parabolic uptrends in gold and silver does not mean "game over" for these markets. What it signifies is that the trends had become unsustainably steep, and that a less steep uptrend should resume in due course. It is very difficult to predict at what point these parabolic trends will break down, but when they do break down it is often dramatic and there is little time to take evasive action. The same thing happened in oil a couple of weeks ago. All three commodities are in a corrective phase and need to stabilize before their uptrends resume at a less rapid rate.
For the time being silver is finding support at the bottom of a linear trend channel at the 200-day moving average, but the risk of continued decline over the short to medium-term remains, once the short-term severely oversold condition unwinds. The dollar’s snapback rally, that precipitated the plunge, is expected to have further to run, although the dollar supply overhang is expected to limit it. The dollar is unlikely to rally above 84.50 maximum, above which there is huge supply.
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