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February 13, 2006

Silver Market Update
by Clive Maund

The silver chart looks considerably more favourable than the chart for gold right now, and, of course, given that these metals have a tendency to move together, an implication of this is that gold may bust out above the constraining return line of its long-term uptrend channel and go ballistic, an event that looks technically unlikely, but could be occasioned by an extraordinary event such as a surprise attack on Iran, which the media are busy preparing the malleable public mind for. The Iranians are very unlikely to be allowed to get away with opening an oil exchange that trades in anything other than US dollars.

It is hard for even a silver skeptic to make a convincing case for anything more than a reaction by silver back to its strong support in the $8 - $8.40 zone, before its advance resumes, a view that is reinforced by the recent powerful breakouts by many big silver stocks, including Coeur d'Alene and Hecla Mining, which had looked terrible for a long time before its breakout.

The 5-year chart for silver looks very positive. The clear breakout above the 2004 resistance level in the $8 - $8.40 was an important technical development that has resulted in the moving averages swinging into decidedly bullish alignment. Not so important as you may think though, for it had been presaged for a long time by breakouts against many other important currencies. A large gap has developed between the 50 and 200-day moving averages, but silver can, and has, run larger gaps, as we can see was the case in 2004, so this does not mean that silver must turn down here. However, with a period of consolidation/correction in gold looking likely, silver MAY break below its 50-day moving average and react back towards strong support in the $8.00 - $8.40 zone, where it would be an automatic buy for traders, and, of course, such a reaction would throw up a great opportunity to buy silver stocks, although a reaction back this far is considered unlikely.

The 6-month chart for silver also looks very bullish, with a steady unbroken uptrend above the 50-day moving average. After the breakout towards the end of January above a resistance level, predicted several hours before its occurrence in the last Silver Market update, it rallied to hit its minimum target at the return line of the channel, towards $10, before forming a small top and reacting back on Wednesday. The uptrend must be presumed to continue while the price remains above the 50-day moving average. Even in the event of it breaking down from this uptrend, an event which may be occasioned by a reaction in gold, it is unlikely to react back further than the strong support in the $8 - $8.40 zone, at most, as outlined above.

Clive Maund,
CliveMaund.com

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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