-- Posted 15 October, 2005 | Digg This Article

Silver has done well since the last update, which was bullish, and while it hasn’t exactly gone wild, it has put in a solid performance, breaking out to the highest level so far this year. What is especially significant about this advance is that it has resulted in silver breaking above previous peaks for the first time since the wild speculative high in April 2004. This move signals the probable start of an important intermediate uptrend that should take the price clear above the April 04 high at about $8.50, notwithstanding any short-term consolidation or reaction that may occur. The advance has already had the effect of swinging the moving averages into bullish alignment, as can be seen on the accompanying 2-year chart. Silver has advanced from the late August low at a measured pace, and is thus not seriously overbought, so further upside progress is possible.

 

However, like gold, the Commercial short position in silver, and total open interest, has continued to rise, and it is now approaching an uncomfortably high level. As with gold, this tends to reduce the chances of the uptrend continuing in the near future and points to continued reaction/consolidation over the short-term.

 

Unlike gold, silver has not staged a breakout above a clearly defined resistance level, and it cannot be said to have broken out of the pattern of the past 18 months until it succeeds in breaking above the April 04 high around $8.50. This being so there is no clearly defined point or even zone where we can expect any short-term reaction to terminate. Having said that, however, it is does not look as though it will react back much, especially given that it broke out to a new high for the year over the past couple of weeks. It is therefore expected to consolidate or react back, but not by much, over the next few weeks, during which time the Commercial’s short interest and the total open interest should drop back from their current high level, which will open up the possibility of a continuation of the still young intermediate uptrend and a challenge of last year’s highs. Should it carry on higher short-term, with the Commercial’s short interest continuing to grow, or remaining at a high level, then it will invite a correction.

-- Posted 15 October, 2005 | Digg This Article

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