Levels To Watch In Gold and Silver (SLV, GLD)

Larry Edelson:  So let’s get right to the market action now …no delays, no dilly-dallying, no pontificating about theories or philosophies. Just the cold hard truth about last week’s action in key markets — and what to expect this week.

First, to the most important market on investors’ minds: None other than that most precious asset class of all, and the world’s most tried and true store of value: GOLD!

In my video update of last Monday, I showed you this chart, and I told you that “I personally would not be buying here. I would only be buying on a pullback when it comes or when I give the all clear, which would be a close into this channel here which right now stands about $1,900 … $1,910.

Well, gold did soar to as high as $1,917, but importantly, it failed to close above that resistance level, and then — as I have been expecting — gold swooned, big time. Shedding more than $200 in a mere three trading days, about an 11% plunge.

More importantly, gold also gave me a very important sell signal when it closed below the $1,768 level. That action now confirms what I’ve been suspecting and looking for.

A sharp, sudden pullback in gold that will shake out all the weak long positions, relieve the overbought conditions, and eventually and properly set gold up for its next major move higher, where the yellow metal will eventually see the $5,000 plus level.

So how low could gold go during a correction? Why is it heading lower? And how should you handle it?

Here are my answers:

First, as published in my recent columns, I believe gold can fall back to the following support levels: $1,611 … $1,567 … $1,433 … $1,386 … and $1,359.

A closing price below each of the above support levels will indicate a move to the next lower support area.

What’s driving gold lower is simply this …

A. It was hugely overbought and way overdue for a correction.

B. The dollar is likely bottoming (short term) as the euro continues to suffer from the sovereign debt crisis and the potential that the euro will disintegrate.

C. It’s just time for a correction: Gold has had an incredible 11-year run, with very few 10% to 20% pullbacks. So, a rather big, possibly drawn out correction is definitely in the cards.

Importantly for your long-term core gold holdings, you should just sit through it and wait for lower prices to add more gold to your portfolio. Ditto for select gold shares. Do not, I repeat, do not try to trade the short side, for most, it’s too risky.

And don’t worry, the bull market in gold is not over yet, not by a long shot!

Despite Bernanke’s neutral stance right now toward taking any further simulative action, rest assured — as soon as the markets start really falling apart again, he’ll be charging in there with all guns blazing. And that’s precisely when gold is likely to take off again. But that time is not here yet.

Next, silver: The devil’s metal ran up to over $44 and then collapsed to as low as $38 before rebounding a bit. That’s almost a 15% slide, in just a few days time.

Thing is, silver has already penetrated the $38.86 all-important technical support level on an intraday basis, a subtle but important signal that it should soon close below it. And once it does, look out below; silver could plunge all the way down to the $30 level!

In silver, I repeat my warnings: Steer clear of it, period, until it finds rock solid support at the $30 level. At that time, depending upon a few other parameters I monitor, I might then issue my first major buy signal for silver. But not until then!

Next, the Dow Industrials. Wow, what wild moves eh? In the past week, we saw the Dow swing between 10,820 and 11,448.

The week before, between 11,529 and 10,644.

Notice how close these numbers are to some of the ranges I gave you in previous issues, where I mentioned massive resistance at 11,542 … and support at 10,567. Pretty darn accurate, wouldn’t you say?

Importantly though, the Dow Industrials and broad stock market indices are now in bear territory. I do expect the Dow to move toward major support at the 9,034 level.

But it won’t happen overnight. And it won’t happen without occasional snap-back rallies and bounces.

So if you acted on any of my suggestions to capitalize on a move lower in the broad stock market indices with inverse ETF investments, hold them!

Related: iShares Silver Trust (NYSE:SLV), SPDR Gold Trust (NYSE:GLD).

Best wishes,

Written By Larry Edelson From Uncommon Wisdom Daily

Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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