Silver Market Update

By: Clive Maund | Fri, Apr 21, 2006
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Sentiment reversed at the flick of a switch in the precious metals markets today, especially in Silver, which had become insanely overbought this week. The "Greater Fool" theory was the only law in town and buyers were piling in aware of the markets' overbought condition, in the belief that they could sell to even bigger idiots later on. This is fine as long as everyone plays the game, but someone evidently shouted "Fire!" in the packed theater today and the result was a stampede for the exits. Given the monstrously overbought condition of the silver market this panic liquidation could continue for some days yet, and the normal pattern is that it will be followed by a period of "wound licking" as shell-shocked and battle-scarred speculators stagger about in dazed disbelief. For those who succeeded in sidestepping this reaction however, or who otherwise have sidelined funds with which to enter the fray, this will be a harvest time when they can buy up silver from the bewildered and disorientated veterans, who may at least be able to draw some solace from the old saying "That which does not kill me makes me stronger", which the writer believes is a load of rubbish.

Our 5-year chart reveals the parabolic rise in silver which had become vertical, and opened up an enormous gap between the price and its moving averages. Due to the disciples of the "Greater Fool" theory putting their beliefs into practice the price rose to an insanely overbought extreme, resulting in short-term oscillators, such as the MACD shown, almost flying off the scale. There was no way of telling when this lunacy would end, the only thing that was clear was that risk was increasing rapidly, and that any factor that came into play that the market didn't like would be enough to trigger an avalanche of selling.

Of course, the bullish fundamentals for silver remain virtually unchanged by the psychotic behaviour of speculators, and this being so, the silver price is expected to steady prior to a new uptrend, once the current wave of panic liquidation has run its course, and the scenario described in the article "How to take full advantage of a Silver Superspike" remains valid, for silver may go on to easily exceed the highs of a couple of days ago. What is happening now is that the market is taking an overdue breather. Thus it is recommended to wait until the current selloff has finished and then buy silver. There should be time to do this before the market moves higher again, as normally sentiment is shattered by the plunge and the price thrashes around for a while forming a base area allowing sentiment to recover before a new uptrend takes hold.



Clive Maund

Author: Clive Maund

Clive Maund,

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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