Silver

As of August 2008, both silver and gold are taking their cues from the oil and dollar markets, just like everything else.

Last week, for example, silver endured a nasty intraday selloff of more than $2 an ounce. Although it bounced during the day, much of the damage held. A $2 move in silver is equal to a $10,000 change in equity – huge for one day’s worth of trading. And this is on top of the large drop it endured the two weeks before that.

This mass liquidation means silver really is extremely oversold from a technical perspective. If the dollar starts to sell off and the oil market starts to move back up, we could possibly see silver have a very nice rebound.

Silver's tumble to a new 2008 low should have cleared out a lot of stops and the correction is much stronger when silver always turned around after testing the 300 DMA. This season silver went some 40% below the 300DMA, indicating that a snap-back rally will be in the cards. Reports of physical shortages in the investment market add to my expectation that silver will test its March highs around $21 before year's end again. The deterioriation of the banking sector and most all other assets could ignite a rediscovery of silver once gold establishes a bottom around $775