Silver Market Update
Originally published January 20th, 2009.
Silver did as predicted in the last update, dropping back towards $10 from the then price at $11.50. It got down to about $10.20 and then bounced. Now it is clearly rounding over beneath a small Dome distribution pattern, marking out what looks like a small Head-and-Shoulders top. Thus, we can expect a retest of the support in the $10.20 area soon, and should this fail then silver is likely to drop back to the next significant support level near last year's lows in the $8.50 - $9.00 area. While the earlier breakout from the severe downtrend and above the 50-day moving average were important technical developments that retain longer-term bullish implications, the falling 200-day moving average still a long way overhead means that it would appropriate for silver to drop back here and do more base building as preparation for a more determined advance later.
Should silver break below $10 soon and head back towards last year's lows, it can be expected to synchronize with gold dropping back to the $750 area to mark out a symmetrical Right Shoulder that matches the Left Shoulder low of last September of a large Head-and-Shoulders bottom pattern that is also evident on the charts of Barrick Gold, Goldcorp, Kinross and other large golds that promises a major advance by the sector as the year progresses.
The 1-year silver to gold chart is interesting as it shows that after a period of severe underperformance by silver last year, its performance has matched gold overall since October, and the rising trend of the MACD indicator suggests that a period of outperformance by silver probably lies ahead, most likely on the next advance by both. This is also strongly suggested by the charts of various quality silver juniors, which are looking very bullish, and have been the subject of considerable attention on the site in the recent past. We took profits in several which rose substantially on the back of the recent silver rally, the chart for the best performer, Minco Silver, is shown below. We bought Minco on 5th December and sold it again on 4th January, more than tripling our money in a few weeks. Minco remains an attractive investment which will be be looking to re-enter if it reacts further.