Silver is in a rather similar situation to gold at present, in that it is now in a trading range, following a breakout to a new high for the year, and appears to be consolidating but is in danger of slipping back in the event of the dollar suddenly breaking higher. The big picture for silver is considerably different to gold, however, for while gold has made a clear break to a hew high, silver remains beneath the resistance of the April and December 04 highs.
Silver’s general situation is clearly visible on the 2-year chart. The advance to a new high for the year early this month was an obviously bullish development, as this was the first time that silver has succeeded in exceeding an earlier high since the April 04 peak, and this move thus signals the probable start of a significant uptrend. A big difference between silver and gold is that while gold now has no recent overhead resistance, silver still has to contend with considerable recent overhead resistance between the current price and the April 04 peak at about $8.40. If silver can succeed in breaking above this earlier high, it will clear the way for a more rapid and substantial advance.
The 6-month chart shows recent action in more detail. On this chart we see that silver is now rangebound between support at about $7.50 and a resistance level that has developed at about $7.90. There is still a rather large gap with its moving averages, which have swung into bullish alignment, and unlike gold it is still overbought as shown by its short-term oscillators. As already stated the action following the break higher early in the month is viewed as consolidation, but a break below $7.50 and a retreat back towards the moving averages could be occasioned by the dollar breaking out above its resistance in the 90.5 - 92 area on the index. The dollar is reviewed in the Gold Market update. Such a retreat would not seriously damage the overall bullish picture, and should it occur, it would be expected to throw up a buying opportunity in silver stocks, as renewed advance would be expected to follow.
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