Silver Market Update
Originally published December 23rd, 2010.
You can consider this Silver Market update to be gift wrapped. As I am unable to get presents to each and every reader this year for logistical reasons, these Gold and Silver Market updates are going to have to suffice, which is perfectly reasonable given how bullish they are.
Many traders are starting to get edgy about silver because its steep uptrend has been in force for quite a while now, and when silver breaks down from an uptrend it has a nasty tendency to drop like a rock. This is understandable, but according to our interpretation of the charts, rather than suddenly break down, silver is instead about break higher and embark on another upleg that will take it to new highs.
On its 6-month chart we can see how the fine uptrend in silver remains in force, although it is clearly at an important juncture, as it must get moving shortly to avert the risk of a breakdown. While gold has reacted back somewhat in recent weeks, silver, which has outperformed gold significantly for months, has instead moved sideways in a small triangular trading range that is interpreted as a continuation pattern, meaning that we think it will break out upside to commence another upleg, and as the Triangle is rapidly closing up, it is clear that it should break out upside soon - and it doesn't look like it will wait until the New Year to do so - it looks set to happen next week. As with gold, the pronounced Falling Wedge that has developed in the PM stocks indices this month is a powerful circumstantial indication that both gold and silver are set to break out upside.
We are aware that this steep uptrend cannot continue forever, especially as silver has now opened up a very large gap with its 200-day moving average, so we may look to lock in some profits as the anticipated upleg completes, depending of course on how it pans out. The recent outperformance of silver relative to gold may be in part due to J P Morgan being "hauled over the coals" re its huge silver short position. If they decide to finally "throw in the towel" we could see a really dramatic spike in silver soon, which will of course be highly amusing to those who are not exactly friends of this company.