Silver Market Update
Originally published November 19th, 2008.
Even though the brutal downtrend in silver that has slashed its price by about 60% from last July remains in force, there are several important signs that it has probably run its course, and that silver is now basing ahead of renewed advance. On the 6-month chart we can see that even though silver plumbed new lows late in October by a sizeable margin, the MACD indicator bottomed way above its August and September lows, showing that downside momentum was decelerating, and it continued to decelerate with the low last week, when the MACD indicator hardly dropped. The behaviour of this indicator relative to price in the recent past is typical of a bottom. Even though the MACD indicator is heading back towards neutrality, by other measures silver remains deeply oversold, greatly increasing the probability of at worst a relief rally and at best a major reversal to the upside. On the chart we can see that a huge gap has now opened up between the price and the 200-day moving average, and between the 50 (blue) and 200-day (green) moving averages. A further factor supporting a reversal here is the fact that silver has dropped back to the upper boundary of a zone of major support visible on its long-term chart. A trigger for a big rally here would of course be provided by a heavy reaction in the dollar, which possibility we examined in detail in the Gold Market update.
Although the Commercial short positions and Large Spec long positions in silver have increased somewhat in recent weeks, the COT chart for silver remains strongly bullish after the massive drawdown in these positions since their July peak. The COT is supportive of a turnaround and major uptrend in silver, which is also strongly suggested by the increasing bullish volume patterns in the best junior silver companies which we have looked at on the site in recent days.