-- Posted 22 August, 2007 | | Discuss This Article - Comments: Source: SilverSeek.com

Silver failed to break clear above the Distribution Dome evident on its 2-year chart and paid the price last week when it cratered. This was in marked contrast to gold, which having looked stronger than silver for some time, broke above its Dome and did not break down below important support last week. However, there have been important developments over the past couple of weeks and especially late last week that are believed to be creating a positive environment for gold and silver. These are set out in some detail in the Gold Market update and so will not be repeated here, but in a nutshell they are creating the conditions for falling interest rates, rising inflation and a fair chance of a continued decline in the dollar. In the light of these developments, and despite the breakdown below support last week, silver may already have hit bottom, so that the plunge late last week may come to be viewed as a final capitulative plunge following months of eroding prices.

 

On the 2-year chart we can see how following its failure to break clear above the Distribution Dome, the accelerating descent of the dome line forced the breakdown last week. Normally, after such a breakdown, we would expect to see the price continue lower over the short to medium-term towards the next major support zone centered on $10 and the precipitous declines in many silver stocks last week appear to be discounting that, but the rapid improvement in the environment for the Precious Metals and the bottoming action in the broad stock market are suggesting a good chance that silver has already hit bottom. That said the plunge last week battered sentiment so we cannot expect silver to turn on a dime and go roaring up again, especially as the drop has significantly increased overhead supply from those who bought late last year and through much of this year. Thus it is considered unlikely that silver will break back above what is now a resistance zone in the $12 - $12.50 area in the short-term and what we are therefore likely to see is a period of intermediate base building below that level for a while that allows sentiment to recover and time for a wider appreciation of the new more bullish reality to sink in.

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