Prepare for Weakening Precious Metals

07/03/2012 9:45 am EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

While metals seem to be breaking down, bonds look like a good place to put some short-term money, note Pamela and Mary Anne Aden of The Aden Forecast.

The metals markets took a turn for the worse last week. Some of the markets are showing new bearish signs, indicating the metals will likely fall further.

Silver, for instance, broke below its one-year support level last Thursday, and both silver and gold are holding below their 65-week moving averages. Gold, however, is still OK as long as it stays above its support at $1,536, basis August.

Silver is more sensitive to the economy than gold is, so there is a possibility that silver could break down further, while gold holds steady. For now, silver could decline to its next support near the $20 to $24 levels.

That being the case, some of you may want to lighten up on your silver holdings. But if you don t mind riding through this upcoming period of weakness, then keep your positions. Keep in mind that silver, and gold and silver shares, are all near oversold areas. In other words, their downside is limited, and they re unlikely to fall too much further or too much longer.

That's the way we currently see it. And if this scenario continues, it'll be a strong sign that Europe will worsen and a recession is coming-that is at least until a strong round of QE3 gets things moving.

Interest rates reached a three week low last week, and bond prices are strong. Bonds are poised to rise further in the weeks and months ahead, so keep the bonds you have.

The stock market has been under pressure since last week. And it looks like stocks will soon decline further. That'll be reinforced if the Dow Industrials declines and stays below 12,500. Nevertheless, the Dow will remain in a neutral trading band by staying between 12,850 and 12,250, and whichever way it breaks out of this band will determine the next trend direction. Continue to stand aside.

The US dollar continues to strengthen, maintaining its safe-haven status. Despite the EU Summit "solution," doubts persist that anything significant will come out of it. This is keeping downward pressure on the euro and the other currencies too.

For now, the key level to watch is the euro's late May low at 1.2350. If this level is broken on the downside, it'll be very bad news for the Eurozone. This will be confirmed if the US dollar index also rises and stays above 83. If so, it could continue up to the 88 level.

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