It was a painful day for silver bulls. We have higlighted the possibility in the last weeks that precious metals markets could be on the verge of a breakdown. Our thesis has been to prepare by picking out the strongest plays. In case precious metals would continue their decline, our subscribers will see which of our recommendations will hold up. Those companies will be the big winners as soon as the selling is over.
The price of silver was down 4.5% today. The worrisome fact for silver bulls is the high volume associated with the price decline. The chart below shows the nasty sell off with the high volume in the blue rectangle.
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The key question is whether this is exhaustion selling, or the start of capitulation.
Capitulation is still in the cards. It could end the 4-year bear market in precious metals.
Let us spend a minute here to emphasize what capitulation would mean. Most investors would experience such a situation as "totally bearish." We would not agree with that view.
Capitulation, in a secular uptrend, after a correction of 70%, implies that the last phase of a cyclical bear market is about to be accomplished.
Alternatively, exhaustion selling is a plausible option because silver has reached the last key retracement levels of the monstrous rally which started in 2004. The next chart shows the critical price level at which silver has arrived.
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We would argue that lower silver prices would offer an almost once-in-a-decade buying opportunity!
We will continue to monitor markets for our readers, and report our view accordingly.
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