Heavy profit-taking hits gold, silver; what to watch, near term

NEW YORK (October 17) Gold and silver futures markets were hit with heavy profit-taking pressure Friday, after overnight posting record highs. December gold hit a new all-time high of $4,392.00 overnight, while December silver reached a new peak of $53.765. As of this writing near midday Friday, December gold was down $97.10 at $4,206.00. December silver was down $3.55 at $49.70.

Overnight, there were greater concerns about the U.S. banking sector.There were worries about bad bank loans at two regional U.S. banks, which have also raised concern about credit quality in the U.S. economy. U.S. bank stocks extended their slide in overnight trading after a sharp selloff in regional lenders Thursday that reverberated through Asian and European trading hours. However, some analysts believe the sell off will be short-lived and that regional banks remain well reserved for potential losses. That notion appears to be prevalent near midday Friday.

From a technical perspective, December gold and silver markets today scored a big and bearish “key reversals” down on the daily bar charts, whereby today’s high was higher and low was lower than Thursday’s trading ranges in both markets. That’s one technical clue that market tops are in place. Strong follow-through selling pressure on Monday would better suggest near-term market tops are in place for gold and silver.

Here’s what I wrote earlier this week in my Kitco “Front Burner” report and it bears repeaing:

From a time perspective, I believe the major bull runs in gold and silver are in the eighth or ninth inning. However, the last inning or two can still see runs scored. This is probably the most important factor that I think will determine where gold and silver prices are headed: Silver above $50.00. Reason: Price history over the past 50 years shows that when silver prices reach $50, or get close to it, which has occurred three times now, the first two times saw silver trade above $50 for only a short period of time. Two weeks from now, if silver prices are above $50 an ounce, then the marketplace can start to believe both gold and silver are entering new, longer-term price ranges that will continue well above what price history of the past 50 years has shown. And if silver drops back below $50 in the next couple weeks, history will again repeat itself--and that would suggest gold and silver are due for extended downside price corrections and even bear markets farther down the road, to continue the historical cycle of boom and bust seen in all raw commodity markets.    

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