Silver Market Update

originally published Sunday, July 01, 2012

Printable Version

Much of what is written for the Gold Market update applies equally to silver, so it will not be repeated here. There are, however, some important differences that we will focus on here, which suggest that silver now has really big upside potential from this point, despite its comparatively anemic reaction on Friday to the news out of Europe, compared to other commodities.

We are not going to do a "post mortem" here regarding what happened last week, other than to say that silver was on the point of breaking to new lows on Thursday, and would have done had little or nothing been achieved at the European summit, as was the case at the previous 18 summits.

There are 2 big differences between gold and silver which both suggest that silver has truly explosive upside potential from here. One is that silver has suffered a far more serious decline than gold over the past 2 years, with sentiment towards it becoming extraordinarily negative in the recent past, and the other that silver's COT structure is now at record bullish levels, and far more bullish than that for gold. This is a situation where all it needed was some pivotal fundamental development - and last week we had it - to turn the tide in the other direction.

On its 6-month chart we can see that silver went into further decline during the early part of last week, taking it even lower, before reversing to the upside on Friday on the news out of Europe, and even though the rise on Friday was comparatively modest, it still left behind a clear "Bullish Engulfing Pattern" on the chart which is indicative of a reversal, particularly following a lengthy decline. It would appear that the markets have gotten so negative on silver, that even after what happened in Europe on Thursday night, they are "not convinced" - but they will be after further strong gains on short covering in the near future.


The 3-year chart shows that after severely testing the key support at the lows of September and December, silver is now in position to rally away from what should be seen later to be a Triple Bottom pattern. Although its moving averages are clearly in bearish alignment, silver will not have to rally too far to get above these averages so that they start turning up.


Given the extraordinary fundamental developments last week that have turned the markets up, in the process signaling an important broad reversal, it should be clear that we have an exceptionally positive risk/reward ratio for those going long silver here, as buyers can place fairly close stops beneath last week's lows. Anyone short should reverse position at once.

Silver's COT chart is now astoundingly bullish after the further contraction of Commercial short and Large and Small Spec long positions last week to record or near record lows since the bullmarket began. This is the kind of setup that typically precedes a major multi-month upleg.

The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. 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 or securities 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. Although a qualified and experienced stock market technical analyst, Clive Maund is not a Registered Investment Advisor or Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks cannot be construed as a recommendation or solicitation to buy and sell securities.