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Silver at an important crossroad

Silver at an important crossroad

Silver COMEX:SI1!

I just wrote about the gold/silver ratio and how it's suggesting a possible new cycle in the silver market (see suggested idea below). To further develop this hypothesis, I find that silver prices are at an important crossroad following last week's rally. The US dollar's sharp fall following the week September US employment data has given relief to battered commodities and commodity-dependent currencies (EM + Aussie + Loonie + NOK). Some are already saying that these assets are changing course, but I prefer to hold of a bit in order to confirm that a durable change in direction is in place this quarter.

This is why I'm watching silver closely. The second bounce off of $14 smells like a double bottom, but I've seen such configurations be invalidated once prices hit their first resistance. With silver prices currently under a 24-month trend line (around $16.00-16.50), I would like to see a technical break before the end of the month (with more US dollar0.00% weakness) to be more convinced of the bullish prospects for this metal. Note that the RSI is also testing a long-term trendline. A break of this resistance would theoretically suggest that bullish momentum is building in the market, thereby supporting a technical break above $16. If this were to happen with a clear breakout above $16.50 (or even better $17), I would expect prices to rise back up to $19 by the end of the year.

The conditions for a technical signal are thus set out, but we should all know that silver may very well start falling again so long as prices are below $16 this week. Nonetheless, there's still a decent support at $14 on which I will continue focusing in the weeks ahead.