Silver Market Update

All the signs are that silver’s long correction is now over and that it is beginning a major uptrend. The Commercials have cleared out most of their short positions, for a massive profit of course, meaning that the slate is wiped clean for the game to start over anew. Public opinion and sentiment towards silver remains rotten, which is exactly what you expect to see at a major low, with the investing public at large, having been duly “educated” by the mainstream media, harboring a negative attitude to silver and if anything inclined to short it. Lastly, seasonal factors couldn’t be better – August and September are good months for gold which will have a positive influence on silver and September is traditionally the best month of the year for silver by far.

On its 1-year chart we can see that just today, silver broke clear above its 50-day moving average for the first time this year, after breaking out from its steep downtrend last month, and then being restrained in a tight bull Flag for some weeks with the price channeled between the upper boundary of the earlier downtrend and the falling 50-day moving average. This strongly bullish action could quickly lead to a dramatic short squeeze. The big gap between the 50 and 200-day moving averages shows the scope for a rapid recovery back towards the failed major support level at $26, although due to the strength of resistance at and above this level, getting clear above this level is going to be a tough assignment. Today’s breakout move was preceded not just by a breakout from the downtrend but also by a substantial improvement in momentum, with the MACD indicator now almost at the zero line.

Silver’s long-term chart reveals that we are at the perfect point for a reversal and a major new uptrend to start, with the price having reacted back to the strong support level shown. Although the price could theoretically drop back further to the long-term uptrend shown, other factors, notably the strong support level just mentioned, make it probable that the new uptrend will start from here. The potential major challenge on the way up will be getting above the strong and clearly defined resistance level at $26 and the red downtrend line shown, which are likely to be coincident when it tries it. Adam Hamilton’s recent article “Silver Short Squeeze” details a massive record short position in silver held by futures speculators. If he is right – and I have no reason to doubt that he is – then we are likely to see a phenomenal rally by silver soon as these shorts engage in a panic buying frenzy to avoid being wiped out that could easily blow silver straight through the resistance at $26 like it wasn’t there.

The latest COTs for silver remain strongly bullish, with the Commercials having largely flushed out their earlier big short position, for a whacking great profit as usual, while the cowed and beaten Large Specs are largely out and licking their wounds – this is the classic stuff of a major bottom.

The long-term silver COT chart is also strongly bullish, with all readings at or close to cyclical extremes that accompany a major low.

Chart courtesy of www.sentimentrader.com

The Public Opinion chart for silver below shows that the investing public hold it in very low esteem, and that has to be bullish.

Chart courtesy of www.sentimentrader.com

The seasonality chart for silver shows that its best month of the year by far, September, is now close at hand, so it would appear that, taking everything into consideration, silver longs have plenty to look forward to in the near future.

Finally, anyone worrying that the impending interest rate spike will stop silver’s ascent should go back to school – that school involving study of what happened in the late 70’s. For the benefit of those readers who were in diapers at the time, I’ll give you the shorthand version: gold and silver prices rose hand in hand with interest rates. The reason? – interest rates were rising because bonds and Treasuries were plunging, so these investments offered no serious competition to gold and silver – what good are high interest yields if the principal value of your investment is shrinking?