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After being stuck in a tight range
following its plunge about 9 trading days ago, silver finally responded to
gold’s creeping advance and “popped” on Thursday, but it
was not that impressive and was followed by a rather negative “spinning
top” candlestick on Friday, meaning that it could have been a 1-day
wonder especially given that gold’s relief rally looks to be about
done.
We can see recent action in detail on the 8-month
chart below. On this chart we see that once silver crashed key support at and
above $26 it plunged on very heavy turnover, which was bearish. The current
minor relief rally is serving to unwind the oversold condition and thus
creating the conditions for renewed decline. This rally is unlikely to get
far and may be done already. With the earlier strong support so clearly and
sharply defined, any attempt to get above $26 will meet with heavy selling
from the wall of overhanging supply above that level arising from trapped
traders who bought at higher levels.
On the 7-year chart we can see that, as is the case with gold, silver not
only broke below a key support level, but it simultaneously broke down from
the long-term uptrend in force from 2008, or 2006 if you use its top line,
opening up the risk of a more serious decline, with the first downside target
being the quite strong support shown in the $19 - $20 zone. It is not so
oversold as gold and so it has plenty of leeway to drop down to this level.
 
On its 20-year chart we can see that having crashed important support and
broken down from the steeper uptrend, silver looks set to drop at least to
the quite strong support in the $19 - $20 area, and in the event that gold
breaks down from the long-term uptrend shown on its 20-year chart, which it
is now perched some way above, and heads for the $1000 - $1050 area, then
silver is likely to dig deeper into the broad band of support and continue on
down towards the lower trendline shown on this
chart, currently at about $16.
Although silver’s price charts look discouraging, its COT chart is at it most positive in recent memory, with Small Spec long
positions being now almost non-existent and Commercial short positions being
at a relatively very low level. By itself this suggests that a bottom is not
too far away, and what may happen over the short to medium-term is that a
base pattern forms between the current price and the support in the $19 - $20
area. We should keep in mind that in the event of the silver price falling
further, the Commercials' positions could even shift into net long territory
for the first time in years.
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