-- Posted 26 January, 2009 | | Discuss This Article - Comments: Source: SilverSeek.com

Silver`s break higher on Friday was an important positive technical development that has cleared the way for a rapid advance towards the resistance in the $14 area. This move negated the potential small Head-and-Shoulders top pattern that appeared to be forming and makes clear that the trading range that had developed following the breakout from the severe downtrend early in December was a zone of consolidation.

 

There are several factors in play that point to an acceleration in silver's advance. One is that it is advancing away from its rising 50-day moving average and getting well clear of last year's savage downtrend, thus allowing sentiment to steadily recover following last year's heavy losses. Another is that the rising trend of the MACD indicator shown at the bottom of the chart is a sign that silver is gathering upside momentum. However, the 200-day moving average is still falling overhead which is a restraining factor reinforcing the resistance in the $14 area, and last year's severe downtrend has of course created considerable overhanging supply concentrated especially in the resistance zones drawn on the chart. These are factors that will challenge silver on the way up as its advance progresses and accelerates. Nevertheless, these are not formidable obstacles, especially when you bear in mind that silver tends to lag gold and to perform best towards the end of major gold uptrends - gold is just powering up for a major uptrend now and as its uptrend progresses we can expect silver to continue to accelerate. In addition the dollar is now looking acutely vulnerable to a steep drop as set out in the Gold Market update, and if this comes to pass it will be an additional driver for silver gains measured in US dollars.

As usual, many of the factors discussed in detail in the Gold Market update, such as the dollar outlook already mentioned, are equally applicable to silver, and are thus not repeated here. Readers are referred to the Gold Market update for this information.

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