Silver Market Update
Originally published May 9th, 2010.
You have to feel a little sorry for silver. It has been suffering from an identity crisis - it can't make up its mind whether it's an industrial metal or a Precious Metal. You could see this on Thursday when as gold surged and the stockmarket tanked, it hardly moved. It was like a bewildered child at a country crossroads not knowing whether to follow its big brother gold and take the high road, or to follow the man with the candy and take the low road. There is an old saying that blood is thicker than water, so after a sigh silver ran to catch up with its brother on Friday. It's nice to have a story with a happy ending, although actually what we are looking at here is a beginning, the beginning of the next stage of a journey to lofty heights.
On its 3-year chart we can see that after its recovery last year from the panic lows of 2008, silver's advance slowed as it approached and ran into a wall of overhanging supply near its early 2008 highs and it has effectively been in a large trading range since as far back as last October. It's 3-year chart is very similar to the 3-year charts for the PM stocks indices, and for both silver and the stock indices the resistance approaching and at the 2008 highs is a major hurdle, which if overcome should lead to a strong uptrend. While the risk that it is Double Topping remains until this resistance is overcome, the strongly bullish action in gold and the completing base patterns in many individual quality junior silver stocks strongly suggest that it will be, and soon. The current tight bunching of the price and the bullishly aligned moving averages certainly puts silver in position to break out upside soon, and we should note that such a breakout is likely to be rapid and dramatic, and will take a lot of traders by surprise.
The 6-month chart shows recent action in more detail. On this chart we can see how silver has been repeatedly backing off from the resistance in the $19 + area. We can also see the rather alarming drop last Tuesday, Thursday`s indecisive rally when gold soared and how it played catch up on Friday with a bullish strong rise from the vicinity of its 50-day moving average.