Why Are Precious Metals Declining?

From ShortSideofLong…

In recent posts, we have been discussing a potential precious metals break out and a possible reversal in trend. After rallying pretty strongly for the last several weeks, the sector has now given up some ground. So what is going on and how will the prices behave in the coming weeks?

Hedge funds and other speculators have piled net long bets on Silver

Silver COTSource: Short Side of Long

So far the 200 day moving average has acted as a strong resistance across the board in the precious metals sector. Gold (NYSE: GLD), Silver (NYSE: SLV) and Platinum (NYSE: PPLT) all stalled at this important pivot point. Same is true for Gold Miners (NYSE: GDX), Gold Mining Juniors (NYSE: GDXJ) and Silver Miners (NYSE: SIL).

From a contrary perspective, hedge funds and other speculators have piled into assets such as Silver over the last couple of weeks. This is a rather sharp reversal in sentiment and usually tends to signal a correction during uptrends or a potential for another leg down during downtrends. From a contrary perspective, current positioning looks pretty bearish to us. This is unless of course, assets like Silver can continue a sustained rally with a break above the 200 day MA.

We continue to track the overall sector very closely…