Day of Reckoning for Silver (SLV)

June 21, 2012 4:27 PM EDT
Tomorrow could be a day of reckoning for iShares Silver Trust ETF (NYSE: SLV) and spot silver. After a bloody day on Thursday that saw SLV drop over 4 percent, spot silver prices are approached levels of known interest. 26.74 was the low struck on May 15th, and 26.14 was the turning point for January's month long rally. Traders say that if silver is going to make a stand, it better make it now because a break of $26 is likely to trigger massive selling. Gold is also nearing important levels.

Another interesting point to note regarding silver is that the price correlation with gold is widening in gold's favor, which shows that the grey metal is the least loved of the two.

In terms of fundamentals, weak data in the U.S. was supportive of silver in the past, and the inflation / deflation story is still playing out and might continue to play out over the next few years. Unfortunately for silver, deflation rules the day. But that could change if Fed officials crank up liquidity at some point down the road. In the meantime, silver bulls shouldn't be surprised if they wake up with their faces ripped off if support at $26 fails overnight.

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