Silver Market Update
Originally published March 4th, 2007.
The arguments relating to the COT structure and its application as a predictive tool set out in the Gold Market update, apply equally well to Silver, so readers are referred to it for details. In this Silver Market update we will look briefly at specific developments in the silver chart over the past week. One big difference between silver and gold is that silver failed at resistance at its highs of last year, while gold never managed to get near to its highs. What this means is that silver is, as we have known for some time, outperforming gold, although that may seem rather academic right now.
On the combined COT and 1-year silver chart, we can see that the Commercials short positions jumped early last week, just before silver started its nosedive. The failure at the highs then led to another plunge, similar to those we have witnessed before, which has already brought silver down to break by a narrow margin the uptrend line shown on the chart. This plunge has broken the price down below the 3-arc fan drawn pattern shown on earlier charts, which has been invalidated, and thus removed. Silver is now short-term oversold so it may take a breather shortly.
This failure at the highs will of course have damaged sentiment, and for this reason alone considerable time will probably be needed for sentiment to recover sufficiently for it to mount another challenge of the highs. As with gold and discussed in the Gold Market update, it will take time for the Commercials to unwind their high level of short positions. Thus we can expect silver to remain bogged down in a large trading range probably for several months to come at least. During this time traders will be able to play the swings and make money out of options, while we wait for a more favorable COT pattern to slowly emerge. As with oil, only in the event of an imminent or surprise attack on Iran is the picture likely to suddenly turn bullish again.