Silver Market Update

By: Clive Maund | Fri, Jul 28, 2006
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The arguments pertaining to gold apply to a large extent to silver too, where this year's sharp runup towards $15 certainly only ranks as a "Spikelet" in comparison to the monstrous "Hunt Brothers" superspike of 1979, which had opportunists everywhere rushing to the furnace with Aunt Maud's treasured silver heirlooms to take advantage of the price rocketing towards $40, which, inflation adjusted, was vastly in excess of the recent peak.

Our long-term chart only goes back to 1994, but keeping the 1979 - 1980 peak in mind, we can readily see that, inflation adjusted, the recent spikelet was a comparatively modest affair. After the peak, a heavy reaction set in, and now, like gold, a trading range appears to be developing. Silver exhibits a fine example of a Pan & Handle base, that formed between late 2000 and about August of last year. These formations are very bullish and good examples of the ballistic advances that frequently follow the completion of such patterns are provided by the charts of ECU Silver ECU.V, Pioneer Drilling PDC and Tanzanian Royalty TRE (the former Tan Range). This is a weekly chart and we can see that, on an intermediate basis, the overbought condition has neutralised, as shown by the MACD indicator at the bottom of the chart. Silver truly broke out from a long, dull multi-year period of sideways trading only late last year, when it broke clear above the $8 level, which level is now a strong and important support level. Thus, the spikelet is "small potatoes" compared to what could eventuate in the future.

On the 6-month chart we can see that the price is being pincered between its rising 200-day moving average, and its now steeply falling 50-day moving average. This is a situation that is expected to generate a sharp move soon. It could break either way, but consideration of the charts of large silver stocks suggests that the break will probably be to the upside. Note, however, that although we may see a sharp move soon, this is unlikely to signal an end to the trading range, which is defined by support towards $9.50 and resistance towards $11.80.



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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