Silver Shows Impressive Relative Strength

Over the past few weeks, we have noted positive divergences in silver futures positioning. The "smart money" commercial traders increased their long positions as silver prices hit new lows for the year to start the month.

Since then, the silver market has managed to rally up to as high as $20/oz even as stocks, bonds, and most commodities have drifted lower. We are also seeing relative strength in silver versus gold prices.

The charts show silver diverging positively in this month's trading – holding up especially well last week even as the gold market broke below $1,700/oz.

Silver's recent outperformance is good news for precious metals bulls. In bear markets, silver tends to amplify gold's declines on the downside.

But the fact that silver isn't confirming gold's latest breakdown suggests underlying bullishness for the metals complex.

If silver prices can continue to rally and break above the $20 level decisively, gold prices should soon follow silver's path higher.

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