Silver Breakout to New Highs or Trading Range?

By: Clive_Maund

We saw a strong rally by silver on Friday that took it to a new closing high, although it did not get above earlier intraday highs. As we can see on our 6-month chart silver did just manage to stay above its uptrend line on the recent reaction, which gives it a chance short-term to break out to new highs, although given the outlook for gold it looks more likely that it will back and fill for a while between the lows of about a week ago and its recent new highs. The development of such a trading range would involve failure of the uptrend shown, which should not lead to the price dropping below the low of about a week ago, although there would be some chance of the price later dropping back towards the rising 50-day moving average.

The action of the past week or so has been pretty much in keeping with what we were expecting, as the prolonged extremely overbought condition called for the reaction which we eventually got. However, the strength late last week was certainly at the upper end of expectations, although what may now happen is that a minor Double Top forms with the mid-October highs leading to the development of a trading range beneath the highs as described in the 1st paragraph. The reaction certainly eased the extremely overbought condition that had developed in silver and has thus opened up the possibility of renewed strength and new highs.

The long-term chart for silver certainly looks most encouraging with the recent strong advance punching the price clear through the resistance near the 2008 highs at last and taking it up into "blue sky country". Like gold, silver is expected to accelerate away to the upside as the inexorable downward spiral of the fiat money system gathers momentum. With tight supply and increasing investment and speculative interest the potential for silver to accelerate away to the upside should not be underestimated.

As usual, much of what is written in the Gold Market update applies equally to silver, to which you are referred.

By Clive Maund
CliveMaund.com

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© 2010 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

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