What About Silver?

July 15, 2013 at 08:21


While most sources concentrate on gold, which dipped to 1180 couple of months ago, silver has been even weaker. Both of these markets are at lowest levels since 2010, but at 18.21 silver lost of 60% of its value, when compared to the major high 49.81 back in 2011.

In response to this protracted downtrend, many analysts and traders have been calling for a bottom in the past several weeks. Last few days in particular produced an increase in bullish reports, following rebound in prices. All of a sudden, it seems that everybody is predicting a major reversal and new uptrend. Unfortunately, these opinions are overly optimistic and most likely premature.

On the weekly chart, silver is in clearly defined downtrend, which is not showing signs of ending just yet. It appears to be heading for the main support in the area of 15. Whether it gets there or not remains to be seen, but the price action is not suggesting bullish reversal yet. We do not see an unusual uptick in volatility, which often happens at key turning points (top in 2011, for example). Nothing about this chart screams “imminent reversal” even if some corrective rebound is possible. The long-term picture remains decisively bullish.

The daily go does not support bullish claim either. For the trend turn up on this time frame, silver would have to climb above the 100 SMA and the latest minor low, currently at 23.35. In addition, the price action is not forming any reversal pattern, at least not yet. Rather, we can see a range under development, typically a sign of trend continuation – down in this case. From the technical perspective, at this point, silver is more likely to make a new low than to start a new uptrend.

Even though the decline in metals is not over yet, it will eventually end. When that happens, silver might be significantly better instrument than gold, and should appreciate more in terms of percentages. The gold/silver ratio is slowly approaching the level of 71 or so, last seen before the historic rally in silver in 2010/11. If this develops in conjunction with important reversal pattern on the daily/weekly chart, silver could be ready for the rally.