Silver Market Update
Silver's done its heavy lifting
8 November, 2004
Last week the focus was on
gold as it limbered up for its breakout above key resistance
in the $430 area, and this was appropriate also for silver investors,
as a successful breakout by gold above this hugely important
strategic level will have a very positive effect on the silver
price. In fact, silver has already done its "heavy lifting"
by breaking out above its key $7 resistance level, and then consolidating
its position above $7.
On the 6-month chart we see
that silver, having again dipped down to test support below $7
as predicted in the last update, is once again up at the top
of its intermediate trend channel. This time, however, it is
not as overbought as when it nudged this line on 2 occasions
in October, increasing the possibility of a breakout above this
channel line. Looking at the 6-month chart alone, it looks more
likely that it will retreat from here, so let's now look at the
chart going back to July 2002, on which we can see that there
is a good chance that the advance will accelerate from here,
especially given the positive developments in gold.
This longer-term chart reveals
a fine parabolic uptrend which originated from a low in October
2002. There can be no doubt of the importance of this uptrend,
as the price rallies from it no less than 5 times. This is why
this parabolic uptrend is said to take precedence over the straight
line channel shown, in other words, on a reaction the price should
find support at it, and not fall further towards the lower straight
trendline shown. The overbought peak back in March is thought
to be the result of the excessive amount of hype about silver
that was widespread back last winter and spring, which resulted
in a "crash and burn" reaction in April that stopped
bang on the parabolic uptrend.
The gold breakout above its
key $430 resistance zone - and we will know for sure once the
$440 level is cleared and the buy stops kick in - is an event
of huge importance for silver. The obvious scope for a dramatic
acceleration in the rate of advance of silver is clear from the
parabolic uptrend which is getting rapidly steeper. This implies
that, in the event of gold taking off as expected, silver will
leap above the intermediate top channel line shown and surge.
The $7 level was the key resistance level for silver, and its
already cleared it. The resistance at the high of last April
above $8 is not expected to be much of an impediment as the price
was not up there for more than a few days.
Should gold back off again
in coming days and then mark time forming a handle to the cup
formation that developed during this year, as discussed in detail
in the latest Gold Market update,
then silver would be expected to retreat back and hang around
the $7 area above the parabolic uptrend, until gold is ready
to go up. The more likely scenario is that gold now gets on with
it and enters a strong uptrend, and silver breaks above its upper
channel boundary and surges, quite possibly taking out the April
high very quickly.
Maund is an English technical analyst, holding a diploma from
the Society of Technical Analysts, Cambridge and living
in southern Bavaria, Germany.
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