Before Mr. Ben Bernanke became Fed chairman, he made a speech before the national Economists Club in Washington, DC. on November 21, 2002, titled “Deflation: Making Sure "It" Doesn't Happen Here.” In these remarks, there were 5 major points Mr. Bernanke pointed out as tools the Fed could use to fight deflation:
US DOLLAR:
The US dollar is one of the most important, yet least discussed chart of the year. Noticing the dollar's break below 79600 late January, early February, only to establish a bearish bias and lure in shorts before turning around higher. The market has held above its reversal window, thus reversing the bearish bias which has led the market to take out its year highs of 8100 set early January. This U turn is having a major effect and pressure on commodity markets as the USD failed to break lower and is trading on new highs for the year. Take note of the gold chart how it is completely opposite of the dollar chart and is an upside down "U" from the beginning of the year.
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It was no easy task for silver bulls this summer as the market tested the patience and strength of silver bulls. The market fell to test its support of 2600 through summer with a low in June of 2610, never breaching 26000. This made bulls sweat bullets as a break below this would squeeze out longs. A very tight trading range off these lows up to 28445 was created as the market found buyers to step up and defend the June lows, putting pressure against the top of the range which finally gave way for the market to break above going into the December futures contract. The short squeeze has reward summer buyers by reaching its first target of 32 off 29 being a gain of $3 which was the original risk down to 26. Going forward, major resistance is met against 3385-3758 being the range of where the market reversed in March of this year. The second target comes in at 35, however a break above this range at 3758 is needed to trigger a longer term short squeeze and attract more buyers to target last summer’s highs of 44275. New minor support is met at 3100-30265, thereafter, 29500-28500 offers next major support based on the top of the trading range during summer of 2012.
Since silver's new low by a tick last year at 26145 in December, we saw the market squeeze into highs of 37580, retesting resistance from where the market broke down from in August. This failed to hold and we have seen the market slowly drift back lower where it is now retesting where it broke out from in December being the 29000-26145 range. This retracement offers bulls a level to defend within 29000 to the 26145 lows, using a break below 26000 as the exit. The target for the move is 32, 35, 38. Failure to hold the 26000 and the market can see further downside room to 20 which would be testing the August 2010 breakout.
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