Isra-Mart srl: Bulls And Bears Tango In The Gold And Silver Market

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Gold and silver bulls and bears have been on a tango dance, as displayed in thetechnical indicators of the two meatals, with bulls maintaining the lead in the gold market, and bears in the silver market. SPDR Gold Trust (GLD) prices are hovering below their 100-day moving average, while iShares Silver Trust (SLV) well below its 200-day moving average, and Proshares Ultrashort Silver (ZSL) hover its 100-average.

But what will be the next twist? Would the bulls or the bears take the lead?

We believe that bears will take the lead, as every piece of news seem to be bad news for the two metals. A deterioration of the US economy, for instance, that used to be positive for the metals (because of the prospect of QE3) now has turned into a negative, as there would be no QE3, dashing inflationary expectations, and strengthening the US dollar. The worsening of sovereign debt issues in Europe that used to be bullish for the metals now has turned bearish, as it has forced traders to liquidate gold and silver positions to pay for margin calls in equity and currency markets; any news of easing of the sovereign debt crisis is bad news, too.

Compounding the bearish fundamentals, the prospect of gold sales by major gold holders like Italy, and the likelihood of a change in commodity speculative limits by CFTC on October 18 could cause a sharp correction in the two metals. Conservative investors should stay away. Aggressive investors may want to sell the metal or even get short, as a momentum shift is rarely reversed.