Silver Market Update
Originally published September 29th, 2007
Even though recent action in silver has been very positive, with it finally breaking free from the shackles of its "Distribution Dome", short-term it looks set to react significantly in sympathy with gold, a scenario that is made a lot more likely by last week's sharp increase in the Commercials' short positions. The long-term outlook remains strongly bullish, so if the expected short-term reaction occurs it will be viewed as presenting another buying opportunity.
On the 2-year chart we can see how silver has broken free of the Dome pattern and by a considerable margin, so that the Dome is no longer a constraining factor. Nevertheless, it remains in a zone of substantial resistance and has become short-term overbought, as revealed by various oscillators, most notably the RSI indicator shown at the top of the chart. Thus, given that gold now looks set to react, it is probable that silver will get dragged down with it. With gold expected to react probably to the $700 area, a corresponding reaction by silver would likely take it back to the $12.50 - $13.00 area, where it will be considered a strong buy again, any such retreat also presenting another buying opportunity in silver stocks.
On the latest silver COT chart we can see the rapidly expanding Commercial short position, which can be presumed to have continued to increase later last week. This is increasing the chances of a smackdown soon, particularly as the Commercials short positions in gold have risen to a 1-year high by a wide margin.