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moneymetals

Silver’s Long Consolidation Looks Like a Launching Pad

The primary trend for gold and silver over the past year and a half has been the absence of any clear direction in prices. Metals markets have been stuck in consolidation mode. Yet for silver, in particular, that consolidation has formed a clear and potentially powerful pattern.

Silver price (chart)

The silver market’s consolidation has formed a symmetrical triangle pattern. Prices are now nearing the apex of that triangle. The pattern cannot hold much longer – it must soon break in one direction or the other. And when it does, the move that follows should be sudden and sharp in one direction or the other.

A bearish breakdown could quickly pull prices back down to the $14/oz level…while a bullish breakout would target $20.50 and potentially much higher beyond that.

The latest Commitment of Traders (COT) report shows silver futures speculators positioning on the bearish side. They are holding net short positions of around 20,000 contracts, a historically large bet on lower silver prices. This lopsided positioning has persisted for the past few weeks in silver.

The good news for bulls is that when speculators pile on to one side of the market in a big way, it usually backfires on them.

Taking the opposite side of the hedge funds and other speculators when their positioning gets extreme is usually profitable, though not always immediately so. This isn’t a timing tool for day traders.



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