Is Silver Pricing In The Next Monetary Supernova, Or Will It Be The Cause?
If the pricing in the world’s commodity and financial markets accurately reflected anything but the culmination of decisions made by high frequency trading systems, then the recent price action in the silver market might have something meaningful behind it. In an alternative parallel universe, the recent rally in silver might actually be ‘pricing in’ the next major monetary event.
The Fed’s second round of quantitative easing was announced on November 3, 2010. Nevertheless, the price of silver had failed to break through the psychological $20 level by mid-September of that year, after having been stuck trading around the $18 level for what had seemed like an eternity to most traders.
The Technical Picture Shows Silver Approaching Key Trend line
The series of charts below show silver’s price action over each year from 2009 to date. In recent months, silver has been consolidating within what looks like a descending triangle pattern that is now approaching its apex.
Silver’s price has also just pushed above a long-term downtrend line that forms the declining top line of this triangle pattern, which is drawn through the successive highs seen on April 24th, 2011 and February 26th of this year. If its current $30.13 level is broken convincingly to the upside, this trend line will then provide support for a rally even higher in silver.
What Does This Silver Price Action Signify?
Although no one really knows where the price of silver is headed in the short-term, the recent near-term trend has been quite bullish for silver. As much as it feels as though it is about time for silver to make a substantial move, most of you should be pre-conditioned for what might come about as early as tomorrow or next week.
Sentiment in the silver market has been soft for many months, and it will probably remain fragile over the coming month. Furthermore, open interest in silver contracts has increased steadily; even as open interest in gold futures has fallen. In addition, the net short of the four largest banks has increased as well. This means plenty of room exists to trigger a sharp sell-off, as the market has seen before.
Although the price of silver will someday pass through its fair value based on supply and demand fundamentals, it is unlikely that this appreciation will happen gradually or in an orderly manner.
Any meaningful upward trend in silver will surprise everyone, including those of us who have been studying and following the day-to-day price action and news in silver for years. While it is difficult to not feel optimistic about silver in the short-term, since for the price of silver to take off without any news feels quite constructive. Nevertheless, no one really knows.