Maybe equities will bounce this week, but the end of QE2 is being absorbed along with the poor economic data out of the US. Friday’s NFP was disappointing, as everyone anticipated. Equities are oversold and oil came down hard. Silver reacted as an industrial commodity and is weak in the face of a falling dollar. So the prognosis is not bullish. In fact, we may get a crash developing before end of June when QE2 ends. The markets seem to be facing up to a failed recovery and the strong likelihood of a double dip - until another dose of QE is announced. The market is like a drug addict at this point.

On the other hand, there could be a bounce. But the momentum is down now. If equities exceed the March tsunami low, they are on their way to a distant bottom. They might bounce right here but be cautious. The dollar is fast approaching its March 08 low and may reverse there.

Strength in gold has supported silver, and then over the past couple days, it seems like silver is back in full force moving dollars per day. At present, it seems like it wants to go to $39, maybe higher, and nearly got there a few hours ago. Gold peeked over $1530 then came tumbling down, which has deflated silver somewhat but just like before the recent crash, silver seems stronger than gold.

There is talk of gold getting to new highs by early June. That’s a week or so away! Silver could limp along or shoot higher too. It’s hard to believe that silver would recover so quickly from the savage beating it took, but  natural forces are usually stronger than man-made ones!

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/5/12_Robin_Griffiths_-_Silver_Could_Eclipse_%24450%2C_Gold_%2412%2C000.html

For now, it seems we will see some consolidation as the dollar waffles around in a seeming rally. The dollar is not collapsing in a hurry after the spike last Thursday, just before the NFP report. So that means we may have seen the low, though certainly it could get there again in the near future. It doesn’t help that the Euro is in trouble again. Gold is acting quite strong nevertheless. Silver is a lot weaker and more volatile, so it may hit new lows - in fact it just did.

It’s seeming less and less likely that metals will head to all-time highs near-term. But let’s see where this correction bottoms.

A more detailed response comes from Ted Butler, the most knowledgeable and reasonable voice of silver for the average investor.  Here is a truly balanced critique of what happened:

http://news.silverseek.com/SilverSeek/1304873055.php

It behooves us normal people to remember that there are much more powerful forces out there who want to line their pockets with our cash. That is the reality of this dog-eat-dog world. So let’s not get complacent and think that massive uptrends are going to go on forever, due to whatever brilliance on our part. That’s just a sucker job so they can rob you blind on the way down.

Now here is a thought-provoking piece about gold foretelling the commodities complex by 75 or 80 days:

http://pragcap.com/gold-foretold-the-commodities-dip

This is brilliant and probably pretty accurate. If we use 75 days the bottom is due on May 19 for commodities.

One scenario that could play out is a rebound this week, maybe hitting a high on Wed, then a decline for a week to the true bottom, then another run up to new highs. The dollar is not really rolling over right away, so we may have a higher high coming.

If the new bottom scenario plays out, the levels to watch are $30 in silver and $1445 in gold. But another possibility is a consolidation that drags on for a couple months, before the launch to new highs occurs.

This has re-ignited some risk-on trades, like the AUD and to some degree gold and silver. But the Euro has not moved much and the dollar index remains pegged at the 74 high it shot up to yesterday.

It seems there are two prevailing beliefs about what happens next:

1. The dollar weakens again early next week and then moves down through its all-time low of 70.7, causing the precious metals to explode.

2. The Euro bounces but sets a lower high and the dollar reversal takes off, causing a bunch of consolidation and correction over the next couple of months.

To support 1, here is a story pointing out the long-term strength of the Euro:

http://www.dailyfx.com/forex/fundamental/us_dollar_index/daily_dollar/2011/05/06/U.S._Dollar_Index_Halts_Three-Day_Advance_Major_Trends_Remain_In_Tact.html?utm_source=twitterfeed&utm_medium=twitter

To support 2, here is another story from the same site pointing out the change in trend of EURUSD:

http://www.dailyfx.com/technical_analysis/elliott_wave/

If the first scenario unfolds, there will be some signs, but the explosion part could be very fast, kind of like the decline this week.

Either way, there will be a bounce soon. Certainly the positive news in the NFP report has put a base under the risk aversion that swept through everything this week.

http://moneymorning.com/2011/05/05/the-silver-bull-despite-this-weeks-sell-off-we-see-higher-prices-ahead/

Yes, the relentless rise in margin requirements has had an effect. The selling has continued much longer than would have been the case otherwise. Silver has hit its 50 DMA at roughly$38.

The references at the end are interesting. Here is the Arends story, which includes a very nice chart:

http://hotair.com/greenroom/archives/2011/05/04/is-there-really-a-gold-bubble-maybe-not/

Now to really tie up all these threads, here is our man Toby Connor:

http://goldscents.blogspot.com/2011/05/greatest-profit-potential-of-last.html

Please note he takes a dollar collapse as a virtual certainty, meaning a fall below the current support at the all-time low. And by the look of his charts, he thinks that could start tomorrow with the NFP report.

Commodities are deflating right now, and silver could drop further, but keep in mind that if the dollar really does collapse here, it could be explosive for gold and silver.

On the other hand, we could get a mild pop post NFP, then a dollar reversal,  and then a major correction lasting a couple months. So either a top is confirmed soon, or the bottom is happening now and a big move up follows.  Pretty divergent possibilities, so stay alert.

http://www.dailyfx.com/forex/technical/elliott_wave/gold/2011/05/04/eliottWaves_gold_2.html

And $1510 is an important trendline, which was exceeded just slightly. It looks like gold will close at around $1515.

Note how wave 5 could go to $1603.

There are several indications that the top for gold and silver is not yet in. The first is that gold has held up pretty well. Gold is basing around $1530 and a likely timeframe says that the current correction could end today.

The second sign is that the dollar has been bouncing around 73 but it looks like it could drop from here. The Euro just began a push toward 1.50, which should be an important target and resistance area. This would be roughly the 71 area on the Dollar Index, which is near the all-time low in March 08.

In fact, there is a small chance that the Euro will power through 1.50 toward 1.60, which would cause gold and silver to blast off. But that is not so likely. Instead, the dollar will likely bounce from that level and there will be a decent correction in the precious metals.

We just might get a spike in gold to $1600, as early as this Friday or mid next week. Timing cycles point to May 12 as a top. Based on silver’s weakness this week and last, it does seem that the coming top will be significant, and silver could drop pretty far from current levels. But there may be a pretty decent bounce first.

Here is the story on CNN:

http://www.cnbc.com/id/42828370

That was a big jump in margin requirement that obviously has some folks worried. Silver came down roughly $5 from its close on Friday this morning in Asia.

At the same time, gold moved up to the high $1570’s and then came down to $1545 as the Euro sank slightly. That erased some of the stellar gain on Friday but already gold has bounced significantly.

So the reality with silver is a little hard to ascertain. It is bouncing, but one wonders if London and NY will add to the downward movement or see this as a buying opportunity. Considering the big banks were covering shorts last week at a frantic pace, it seems likely that more buying will step in.

Anyway, the $5 drop in silver is shocking, to the say the least. That will have a lot of folks mighty concerned when they wake up.

The news about higher inflation in Europe was an interesting counterpoint to the move by MF Global. As of Friday, it suddenly looked like the ECB might raise rates again, as early as May. Here is the story:

http://www.businessinsider.com/eurozone-inflation-april-2011-4

Are these two events related? If the Euro jumped because of an anticipated rate hike, the dollar would have tanked and gold would have spiked - well, I guess it did spike. It certainly blew through resistance at $1545 and is now using that as support. But maybe the take-down in silver kept it from really exploding.

In order to keep your eye on the prize, here is a timely reminder of why gold and silver are the place to be:

http://www.gata.org/node/9854

The dollar, Euro and Yen are toast. It’s just a matter of which one is less bad at any given time. Which is why the monetary metals are rising like they are.

And the big picture is that commodities are rising. No matter what theory you use to support that fact, it’s still a fact. And here is an interesting perspective on how unique this is in the past 100 years:

http://www.energyandcapital.com/articles/trailer-park-investor/1504

Commodities had been dropping for a century. Until in 2002, they turned and have been going up since. This is of massive historical significance. No one is entirely sure why this is happening, though the most likely theory is monetary liquidity. But the dollar has been losing value since 1913, when the Federal Reserve was invented. So the actual reasons may be more mysterious and rare. The point is, this is a big trend and not one that will likely change anytime soon.