-- Posted 9 August, 2005 | |

Silver performed poorly the past week compared with the gold rally and dollar decline. Even though gold and silver do tend to move in tandem, when looking at the big picture, it's not always the case. In early June, as last week, gold had a nice rally while silver declined. 

Looking the recent COT data in silver, things seem somewhat neutral. The past few week's rather bullish COT numbers resulted in only a small rally of circa 30-40 cents. While gold has kept on rallying, silver already corrected last week.

A closer look at the silver COT chart above reveals that the major change the past week has been in the liquidation of NonCommercial shorts, which had been at comparatively high levels the past couple of weeks (green small circle). At the same time commercial longs, also at multi year highs, declined the past week. Looks like the NonCommercial silver shorting ended in liquidation of the shorts after the 30-40 cent rally.

Silver has declined 10 cents after last Tuesdays COT data, so it's quite safe to assume that the COT structure in silver has improved toward the end of the week. 

If we don't get too much price action early next week, I'm sure next Fridays data will confirm this. I would say silver still looks rather bullish from a COT perspective, even with the changes in the market structure the past two weeks.

What might be of concern to silver speculators though, is the possibly (very) short-term correction in the rather strong gold rally and dollar decline. A gold sell off would surely not be bullish for silver.

Even though gold has rallied strongly the past few weeks the COT structure still looks remarkably bullish.

Fund longs stood at rather low levels (green circle) and commercial shorts at almost multi year lows (red circle) last Tuesday. Open interests (orange circle) has also been declining. Gold has still rallied strongly after this COT data from last Tuesday, so the COT structure in gold has probably deteriorated at least a bit the past few days.

This said, things could look worse for gold, from a COT perspective and an imminent correction in the gold rally does not look inevitable from a COT perspective, even though it surely could happen.

A look at the dollar: The recent dollar decline has led to some liquidation of the massive Commercial long position in the Swiss Franc and even stronger liquidation in the USDX. Still, Commercials are heavily short the dollar and this should give plenty of room for the dollar decline to continue even in the short term. Needless to say, this would probably be quite bullish for gold and silver.

With the 10-cent correction in silver after Tuesday and with the current COT structure in silver as well as in gold and the dollar, I am very optimistic about the rest of this year for silver and gold investors. The 7 month long dollar rally might have finally come to an end and the sideways chopping silver and gold markets have a good change of breaking through their multi month triangle formations to the upside in the not too distant future.

August 6th 2005

Carl Löfberg

Tampere, Finland