Silver Market Update
Silver appears to be positioning itself for a major advance, a prospect which will not be dimmed by a short-term reaction. COT figures suggest that a short-term reaction is likely, and this would not be surprising as although the price has broken above the April 04 high at about $8.40 on the US$ chart, the break is so far only marginal. However, the resistance around these highs is not as important as one might think, for the simple reason that silver has broken out to clear new highs against the charts of many other currencies, as detailed in the last update.
The 5-year chart shows the overall situation. On this chart we can see the very steep advance late in 2003 and into 2004 that resulted in an extremely overbought condition, which led to the lengthy consolidation pattern that followed. However, the strong advance from September has taken the price well above the highs earlier in the year and swung the moving averages into bullish alignment, and thus looks like a breakout drive that should take out the highs of this large pattern and usher in an important new uptrend. In fact, as already mentioned, the price has already marginally exceeded the April 04 highs.
Thus, silver is in position to begin a substantial intermediate uptrend from here. It is overbought short-term and this may result in a short-term reaction, but any such reaction should simply put it in better technical shape to stage a significant advance. It should be noted that the current overbought condition is nowhere near as extreme as it was in April 04.