Silver Showing Amazing Strength

Commodities / Gold and Silver 2011 Feb 20, 2011 - 07:07 AM GMT

Best Financial Markets Analysis Article Silver has shown amazing strength in recent weeks, surprising even its staunchest advocates by making light work of recovering the ground lost in the January reaction, and even went as far as to break out to new highs late last week, hugely outperforming gold in the process, which not unnaturally has silver bugs *****-a-hoop. We were looking for a big rally in the last update posted at the end of January and we have not been disappointed.

The breakout to new highs last week was undoubtedly a very bullish development and it makes an advance towards $50 a reasonable objective for later this year. However there are signs, principally in the behaviour of gold and Precious Metals stocks, including the volume patterns in individual silver stocks, that silver is first going to react back before it continues much higher.

On its 8-month chart we can see the bullish engulfing candlestick pattern that was a factor enabling us to predict the rally, and as we had also expected the large number of traders who had bids in near the $25 support level were left standing at the station as the train pulled out without them.

Despite the longer-term bullish implications of the breakout to new highs, silver is thought to be very close to topping out now on a short to medium-term basis, which has more to do with what we can see developing on the gold charts and the charts of PM stock indices and individual silver stocks, than it has to do with the silver chart, although we can see that silver on Friday hit a trendline target which could mark the top of a broadening pattern that silver could now react back across.

If silver is now destined to react back with gold and PM stocks, how far might it drop? A reasonable objective for a reaction would be the January low from which this advance started, although bearing in mind the obvious strength displayed in recent weeks, it may not drop back further than the support level in the $28 area.

The latest silver COT chart shows that the Large Specs have ramped up their long positions again over the past couple of weeks, and remember that this chart is only up to date as far as last Tuesday's close, so we can expect their positions to be considerably higher than shown here after silver's sharp rise on Thursday and again on Friday, which means that downside risk has reappeared. The COT chart was a factor that assisted us in determining that silver was set to rally in the last update, as at that time the Commercial short and Large Spec long positions were at a very low level.

By Clive Maund
CliveMaund.com

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© 2011 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

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 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.

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Comments

Bob
21 Feb 11, 09:05

silver possible pull back?

Markets correct all the time but I think that this silver market is different than others How? All fiat currencies are failing at the same time.

It seems that people, nations can't get enough. In the USA no one other than Gold and Silver Bugs are buying. Why? This country has never experienced a failed currency. When that happens than everyone will be trying to buy, but good luck there will be none to be had unless the price is right.

I'll sell but no for US dollars.

Onc' Scrooge
21 Feb 11, 13:47

Failed US Currencies?

Hi Bob,

your comment on Clive's article is not right:

your country (like the mine) has had a lot of failed currencies:

- colonial notes in the 177x

- continental notes of the 178x

- notes of the free banks 1836 to 186x

the FED of San Francisco is writing about this time:

"By 1860, an estimated 8,000 different state banks were circulating "wildcat" or "broken" bank notes in denominations from ½ cent to $20,000. The nickname "wildcat" referred to banks in mountainous and other remote regions that were said to be more accessible to wildcats than customers, making it difficult for people to redeem these notes. The "broken" bank notes took their name from the frequency with which some of the banks failed, or went broke."

- CSA-Notes gone to less than a penny in 1865

but it's a long time ago and it's not in mind of the people

Take example on the great German inflation with witness of Ernest Hemmingway in summer of 1922 coming from France to Germany he wrote:

"...we changed some French money in the railway station at Kehl. For 10 francs I received 670 marks. Ten francs amounted to about 90 cents in Canadian money. That 90 cents lasted Mrs Hemingway and me for a day of heavy spending and at the end of the day we had 120 marks left! ...the mark at 800 to the dollar, or 8 to the cent, a pound of coffee could be had for 34 marks. Beer was 10 marks a stein, or one cent and a quarter. Kehl's best hotel served a five-course meal for 150 marks, or 19 cents.... This miracle of exchange makes a swinish spectacle where the youth of the town of Strasbourg crowd into the German pastry shop to eat themselves sick, and gorge on fluffy, cream-filled slices of German cake at 5 marks the slice...."

So in 1922 "sound" Canada-$ were changed into inflationary Marks why not in 2012 "sound" Canada-$ into inflationary US-$ at the same level ?

(REMARK: a Canada-$ of the time was equal to an US-$ a worker in San Francisco earns in 1922 about 8 $ a day (**) - a worker in Germany 30 Marks means 3.75 Cents a day (!))

(**) Bureau of Labor Statistics, United States, History of Wages in the United States from Colonial Times to 1928, Washington

Somebody who reads these statements from Hemminway can't be ignorant to the possible distinct of the US - if he is a PM-Bug or not.

I think it's more or less a lack of education, of knowledge of his own history but also of the money system which makes the people behave like (gouvernment- and bank-beloved) sheeps interested only in the cream-filled slices but not in the rest of the story ?

Onc' Scrooge

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