Silver Market Update
Originally published June 25th, 2007.
As the arguments set out in the Gold Market update are equally applicable to silver, they will not be repeated here, and in this Silver Market update we will only discuss the differences worthy of note.
Whereas gold broke down from its uptrend in force since mid-2005 only this month, Silver broke down from its similar uptrend late in April and early in May. This doesn't actually make much practical difference, for as we can see when the 2-year silver chart and 2-year gold chart are put side by side, where one goes they both go.
A significant difference between silver and gold is that because silver has underperformed relative to gold so far this year, if both metals drop then silver is likely to break below its January low at about same time that gold breaks below its March low. Thus, while the stop loss level for buyers of gold at this time would be set below the early March low, in the case of silver it would be below the January low.
The silver chart looks "uglier" than the gold chart right now, and with the price rounding over beneath a "Distribution Dome", a series of lower highs and a trendline break, the downside risk is as obvious as the Marquis de Sade's nose. However, as with gold it is holding up thus far at a point very close to its long-term moving averages, and there are signs of accumulation in various larger stocks. So it could nevertheless break out upside.
Clearly, this is a situation that is likely to break one way or the other soon. A key difference between silver and gold is that when silver drops the declines can be savage - much more severe than gold and you have to be fast to escape serious damage. For this reason it is considered prudent for silver bulls to wait until it breaks above the "Distribution Dome" shown on the chart before going long. This dome is now falling quite steeply above the price.