Silver is believed to be continuing to base and has staged a tentative rally over the past couple of weeks as the dollar has broken down and gold has recovered. The hesitant and modest nature of this rally is hardly surprising as the market is still in shock after last month’s rout. On the 6-month chart we can see how the timid rally has brought silver back into an area of strong resistance just beneath the giant gap down that formed in mid-April. This rally has also unwound the seriously oversold condition that had developed a few weeks ago.
The medium-term outlook is good, with the dollar having broken down from its 3-month countertrend rally and looking set to plunge, and gold picking up after nicely after a successful test of its long-term trendline. We can therefore expect a strong rally by silver, once this basing action is complete. However, with the dollar now short-term oversold and on support and gold short-term overbought and at resistance, it is considered likely that silver will back off into the $5’s again short-term, before attempting to overcome the gap resistance above $6.30. Significant progress can be expected once the price gets above the falling 50-day moving average now at about $6.68, and this indicator turns up.