Silver Market Update
Originally published December 13th, 2009.
A bizarre anomaly of gold's recent strong runup was the unusually poor performance of silver, which normally outpaces gold noticably during the middle and later stages of an uptrend. It did not gain any serious traction and is already back below its September peak. The fact that it did not even manage to break out to new highs is taken as a non-confirmation of gold's move, as is the failure of the PM stock indices to make new highs, and is viewed as bearish for the sector over the intermediate-term, meaning the coming 2 to 6 months.
We can see silver's recent pedestrian performance to advantage on its 2-year chart. In addition to the stalling out at the resistance around last year's highs, with an attendant decline in upside momentum as shown by the RSI and MACD indicators at the top and bottom of the chart, we can see a marked convergence of the major uptrend channel in force from last October. It looks like a bearish Rising Wedge, although the parallel channel with a lower support line running beneath the April and July lows introduces an element of doubt into this interpretation. If it is a valid Rising Wedge then we can expect the price to break down from the channel in due course, which would be a sell signal as it would open up the risk of a severe decline.
Much now depends on whether gold can hold above its crucial parabolic uptrend and parallel uptrend support - it is drawing very close to this zone of important support in a short-term oversold state. So a bounce is likely soon which should coincide with a bounce in silver. However, other factors, a chief one being the dollar breakout, point to gold going on to crash this support in due course, which would be expected to lead to silver breaking down from its uptrend and plunging.