Is Copper About To Pull Silver Higher?

New York (May 5)  Contrary to what we  thought a year ago, when we wrote Dr. Copper Flashing Red Alert, copper has held up very well at a major support zone. We warned our readers to closely follow copper as it was ready to fall through the critical $3 level. If that would have happened, the world economy would have been in big trouble. Although we still believe that trouble is ahead, it seems not the case in the very near term.

The following chart highlights two metals: silver is drawn with the grey line and copper in brown. The chart clearly shows the correlation between both metals. The obvious conclusion is that silver has closely tracked the base metals complex since the great financial crisis.

The most interesting chart observation is the major support line for both metals, which we marked in dark blue. It comes at $3 for copper and $19 for silver. Note how the support zone goes back 4 years, making its importance even bigger. Especially the support line in silver is old resistance (look back at 2010).

The chart shows that, for now, both metals have found support. Whether it holds is anyone’s guess, as the metals have been in a downtrend since 2011.

So let’s look for some other indicators to get an idea of market strength or weakness. In particular, the futures market plays a key role in price setting (whether we like this fact or not is another discussion). Ted Butler, analyst of market structures in the gold and silver futures market, analyzes in great detail the weekly futures positions, available to his premium subscribers at Butler Research. Specifically in the silver market, Butler notes that technical funds increased their gross short position considerably last week. He notes that “this is unabashed good news as it puts the technical fund gross short position over 30,000 contracts and close to the historical high water mark.”