-- Posted 23 May, 2007 | | Discuss This Article - Comments: Source: SilverSeek.com

While looking weaker than gold at this time, silver is expected to turn up shortly for the same reason as gold - the inflationary implications of an impending sharp rise in the oil price – the expected breakout by oil from its large Head-and-Shoulders bottom formation will project it to a minimum target at $80.

On the 6-month silver chart we can see the potential Head-and-Shoulders top that has formed during this period, that had been identified earlier, but we can also see that, at least on the basis of its recent performance, silver is close to its normal oversold limits, as shown by the oscillators at the top and bottom of the chart, so there is plenty of scope for an advance. Note also how it is at a classic buy spot, being just above its 200-day moving average, the point where it turned around on 2 previous occasions during this period.

 

Thus, despite the potential Head-and-Shoulders top in silver, and despite it looking weaker than gold at this point, with its downtrend not converging in the same bullish manner as the downtrend in gold, the combination of the powerful bullish influence of a strongly rising oil price and its present oversold condition have created the conditions for a strong rally that is likely to start soon. Probably what we will now see is a strong rally from here followed by a reaction next month into the seasonal low period, before the advance resumes in earnest.

The Commercials short positions in silver fell significantly last week, but were not, as of last Tuesday, at a level thought to be low enough to allow for a big rally. It will therefore be interesting to observe the situation at the end of this week, to see if they raced to the exits early this week as they did with their oil short positions early last week.

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