Precious Metals Correction Imminent

I am sick and tired of people talking about precious metals these days. Where were you 5 years ago?

Fundamentals:
- Too much mainstream chatter about QE and related crap (e.g., hyperinflation, gold/silver, commodities, Fed abolishment, etc). QE so far is nowhere near enough; this is just the tip of the iceberg.

- Basic economic fundamentals (i.e., jobs, debt, consumer demand etc.) are still very uncertain, with no signs of genuine recovery; unless you believe in, and are willing to bet your money solely based on, government statistics. For example, payroll data have indeed improved as of late, and this Friday’s payrolls should be somewhat positive. Although I don’t think these data alone prove that we are in a genuine recovery, it’s evident that we will keep seesawing between bulls and bears..until one side eventually gains momentum.

- Bearish economic sentiment may boost demand for PMs, but I think this will be outweighed by diminished risk appetite..at least until QE3 starts making headlines later in the year/next year. Bullish economic sentiment wouldn’t be that beneficial for PMs either because the safe haven/QE longs may pull out. Until one sentiment takes full charge of the market, I think PMs will consolidate and this correction should be the first of such consolidation phases.

- I expect 2011 to be a risk-off year. 2009-2010 was great for many who made the QE1/QE2 bet. But with increased uncertainty in tax and regulatory reform, the assets/trades that benefited from the QE1/QE2 bet may consolidate this year as investors scale back and lock in those returns.

- A partner at my law firm started reading Commodities Rising by Jim Rogers, a book I recommended to him 4 years ago! (this is a contrarian indicator)

Technicals:
- Bearish rising wedge
- Negative momentum divergence
- Decreasing volume

I massively shorted silver at $30.9. BOH. I’m still a long term PM bull, but given the price action during the past few months, a correction of 5-10% (for gold, x2 for silver) is certainly fair game. Not to mention this is a pretty low risk entry point for shorts.

Target: $24-$25 (will most likely flip to long here)
Stop: $32
Time frame: 3-5 weeks

Update 1/5: PMs are starting to violate their trendlines. A short-term reversal to the upside is possible, but the direction for the next month is down.

As seen below, gold is starting to break. In addition to the technicals listed above, note the spike in volume on this week’s sell-off.