Silver futures remain bullish

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Saturday, December 4th, 2010
silver futures chart

March silver futures - daily chart 3rd December 2010

A positive week for silver, with the March futures contract ending the week with a fifth consecutive day of gains and breaking above the $29 per ounce level to end at $29.425 per ounce and just below the high of early November, which originally signalled the short term pull back of the last few weeks. The most significant day last week was Tuesday, which ended with a wide spread up candle holding above all four moving averages and also clearing potential short term resistance in the $28 per ounce region. This has now become a platform of support for a sustained move higher, with Friday’s relatively wide spread up candle adding further to the bullish momentum.

Below, the short term moving averages are providing an excellent platform to the trend higher, and with the 40 day moving average also sloping upwards, the longer term sentiment for silver remains positive. My own forecast for the year end in spot silver was $26.50 per ounce, so we are well above this level, and could even move beyond $30 per ounce before the end of the year, a target which now seems increasingly likely. The risk on appetite of investors is also helping to fuel demand for the industrial metal, and with China continuing to increase demand for the metal, the prospects are favourable for an extended run for the metal well into next year.

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Silver futures – 16th November 2010

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Tuesday, November 16th, 2010
Silver futures chart 16th November 2010

Silver futures chart - 16th November 2010

December silver futures steadied yesterday following Friday’s sharp sell off in the commodities sector as the markets reacted to the fundamental data from China, which gave clear signals that inflation in the Chinese economy was increasing, raising the prospect of an interest rate rise and a subsequent slow down in demand for this key industrial metal. Along with copper, silver is one of the key materials on which the economic growth in China has been based, and is therefore particularly sensitive to any economic data from the region, and as a result we saw silver prices fall dramatically on Friday, breaking below the 9 day moving average and closing marginally above the 14 day moving average immediately below.

Yesterday’s price action was muted in contrast, ending with a doji candle as the markets paused, but generally reacting positively to the news that China had decided to keep rates on hold for the time being, with the December silver futures contract closing above the 14 day moving average once again. The reversal for silver came as no great surprise and indeed I had forecast this last week, following the steep shooting star candle on the daily spot silver chart, which gave us a clear signal that the market was about to turn.

The question now of course is how far silver prices will retrace, before continuing the longer term upwards trend, and for this we need to consider the 40 day moving average and potential support below. The first of these is the support area in the $25 per ounce region, which should provide a platform of support and prevent a further move lower, whilst any breach here could open the way to a test of the 40 day moving average at the 23.94 price handle below. Given the depth of the price congestion below, then this should prevent any further fall, and as such we can expect to see silver prices recover and regain the upwards momentum of the last few months. As such, the first step is a break and hold above the 9 and 14 day moving averages, which would then see the commodity recover to $27 per ounce and beyond in due course.

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Silver futures – 15th November 2010

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Sunday, November 14th, 2010
silver futures daily chart

December silver futures - daily chart 15th November 2010

A volatile week for silver futures last week, which saw the December contract fall sharply on Friday and end the day with a wide spread down candle following the strong gains of Tuesday, as we watched the metal break the $29.00 per ounce price point, before closing marginally lower. The week ended with the December contract trading at $25.84 per ounce, well below the high, but still retaining the long term bullish sentiment for the metal, with the low of the day finding support from the 14 day moving average in the $25.63 price region. The 40 day moving average continues to point firmly higher for the commodity, and provided this remains unbroken in the next few days, then we can expect to see silver futures pick up the bullish sentiment once more and continue higher in the longer term.

Throughout the last few months, silver has benefited from the spillover effect for gold, which has continued to climb ever higher, fuelled in the last few days by talk of a return to the gold standard, which whilst unlikely, has certainly injected further momentum in the recent long term trend. As such the sentiment for gold looks set to continue in a positive vein, and provided the recent dollar strength reverses this week, with a consequent rise in equities, then we can expect to see commodities in general and silver in particular benefit as a result and help to extend the bullish trend further.

For this week, we need to see a break and hold back above the $28 per ounce level, and provided this is achieved, then we should see silver continue higher once again, and with the deep and sustained platform of support below in the $25 per ounce level, then the outlook remains firmly bullish with the current pull back seen as a solid buying opportunity.

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Silver future analysis – 26th October 2010

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Tuesday, October 26th, 2010
silver future analysis

Silver Futures - daily candle chart 26th October 2010

December silver futures recovered some of the lost ground of last week, closing yesterday’s commodity trading session with a narrow spread up candle, with a small wick to the upper body, closing at $23.55 per ounce and just failing to hold above the 14 day moving average on the daily chart. The key feature of yesterday’s price action for the commodity, was the short term resistance presented by the 9 day moving average which provided a temporary barrier to the high of the day, suggesting that we may see some further short term bearish sentiment as a result. Indeed this has been confirmed in trading this morning, with silver futures moving marginally lower at $23.28 per ounce, down $0.26 per ounce on the day so far, and trading back below the 14 day moving average once again, with the 9 day moving average presenting a technical price barrier to the attempt to move higher.

As such, the short term outlook now has a mildly bearish tone, but the longer term trend remains firmly bullish, provided the current short term retracement does not develop into a longer term pull back. This seems unlikely at present, and the $23 per ounce level will prove to be key in this respect, as this price region should provide the requisite support if we continue to probe lower. The key for the next few days will be whether silver futures break and hold back above the $24 per ounce level, and if so, then this will provide the platform of support required to see the metal recover the bullish momentum once again, and retest the $25 per ounce high of two weeks ago, which will then see silver move towards our end of year target of $26.50 per ounce in due course.

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CME silver future prices – 20th October 2010

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Wednesday, October 20th, 2010

December CME silver futures closed lower yesterday, ending with a wide spread down candle but with a wick to the lower body, as the commodity markets in general and metals in particular reacted to the surprise decision from the Chinese to raise their interest rates, news which took all the markets by surprise. Whilst the news itself was not dramatic it was the unscheduled nature of the release that caused a wave of selling with consequent strength in the US dollar as the prospect of possible tightening in demand spooked the commodities sector. However, as expected, much of this concern has since dissipated with commodities in general recovering this morning, with the US dollar turning lower once again to continue its downwards path once more. Equities have also picked up with the Dow Jones trading higher after the opening bell.

From a technical perspective, the move lower yesterday, saw the low of the day bounce off the 14 day moving average, with the close finding support from the 9 day moving average, both of which suggest that the strong bullish trend of the last few weeks for silver remains firmly in place, as the short term moving averages provided solid platforms. As such we can expect to see silver futures regain the lost ground of yesterday, and move back above the $25 per ounce high of last week, to continue towards our initial target of $26.50 per ounce in due course, with all three moving averages providing strong support below. In early trading this morning silver futures are trading at 23.54 down from the high of 23.87 earlier in the day.

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