Silver Market Update
Originally published October 26th, 2008.
If we define a bearmarket as the price making a series of lower intermediate lows beneath falling long-term moving averages, then silver is in a bearmarket against the dollar and against the Euro and most other currencies. It is worth recalling, however, that by this definition both gold and silver lapsed into bearmarkets in the mid-1970's, which turned out to be severe corrections in the middle of a major bullmarket, as in the late 70's they picked up again and accelerated into spectacular parabolic blowoff tops.
Fundamentally, if the "authorities", that is the people who were responsible for creating or permitting the current financial shambles, manage to get a handle on things and stabilize the banking system sufficiently so that they can concentrate fully on their favorite pastime of printing money, and assuming they can navigate their way through the derivatives minefield, then both gold and silver are likely to resume an upward trajectory. For now though, the silver market is very much on the defensive, as shown by the price retreating ever lower beneath a falling 50-day moving average, despite it being obviously deeply oversold and just above important support which in favorable conditions has the capacity to generate a strong bounce. An ugly reality of the silver market is that it has been behaving more like a base metal than a Precious Metal in the recent past.
On the long-term chart we can see how silver has crashed successive support levels, down to and including the important Summer 06 low, which has not surprisingly had the effect of swinging its long-term moving averages into bearish alignment. However, it is now deeply oversold relative to these moving averages and arriving at a zone of strong support which is likely to generate a strong bounce in favorable market conditions such as would be occasioned by a dollar reversal.
The 6-month chart shows in detail the savage downtrend that followed failure of the key $16 support level. A sign of an improvement in fortunes for silver will be the price breaking above its 50-day moving average (blue line) and this indicator subsequently turning up.
There is a lot of talk doing the rounds that the paper market, especially the Comex, is heavily manipulated and suppressed and that this is the reason for the big premiums for physical silver that currently exist, for both bars etc and coins. If this is true then we can expect a thriving black market to spring up that renders the paper markets increasingly irrelevant, or forces them to close up the gap. It could be argued, however, that the large premiums are due to a hard core of survivalists buying physical in expectation of a banking collapse, and if this doesn't happen, probably because of many banks being nationalized, then these premiums will subsequently ease.