Like gold, silver gapped out of its downtrend last week, but volume was lacking on this move, which, given the now bullish outlook for the dollar, may turn out to be a “pop” that will be followed by renewed decline. This breakout was predicted in the last update, when it was pointed out that silver’s COTs were still far from outright bullish.
You are referred to the parallel Gold Market update to read the reasons why the dollar may be shaping up for a sizable rally back to the 97 area on the index, before turning and heading south again. Needless to say, this can be expected to knock gold and silver back down again.
On its latest 6-month chart we can see how silver gapped higher last week, after breaking out of its recent downtrend a few days before. As mentioned above, due to the immediate outlook for the dollar being positive, with a sizable “swansong” rally in prospect, this breakout by silver may well turn out to be a “pop” to be followed by renewed decline. How far might it drop? – a logical target, given that gold would probably drop to the $1200 - $1215 area, would be somewhere in the vicinity of its July lows, i.e. somewhere in the $15 area.
While silver’s latest COTs look rather better than those for gold, they are still a long way from being outright bullish – there is plenty of room for improvement, and thus plenty of room for silver to drop short-term…
Click on chart to popup a larger clearer version.
Like gold, silver is marking out a giant Head-and-Shoulders bottom pattern, but in silver’s case it is downsloping as we can see on its 8-year chart below, which reflects the fact that silver tends to underperform gold at the end of sector bearmarkets and during the early stages of sector bullmarkets. Prolonged underperformance by silver is therefore a sign of a bottom. This chart really does show how unloved silver is right now, but although the price has drifted slightly lower over the past several years, volume indicators have improved, especially this year, a positive sign. A break above the neckline of the pattern, the black line, will be a positive development, and more so a break above the band of resistance approaching the 2016 highs. Once it gets above this it will have to contend with a quite strong zone of resistance roughly between $26 and $28. Silver is amongst the most unloved of all metals, a situation that is not expected to continue, partly because silverbugs are manic-depressive and they have been depressive for a long time, meaning that it surely won’t be all that long until they are on the rooftops singing Happy Days are Here Again
, although it now looks like they will have to put up with another retreat by silver first as the dollar stages a relief rally.
End of update.