In this article, we would like to point your attention to the big picture regarding the silver market - since both metals usually move together the below analysis should prove useful to gold investors as well. (Click to enlarge)
On the very-long-term chart this week, emphasis is given to the TRIX indicator, which has declined somewhat in the past weeks. This is a bullish signal for the long-term as important developments usually occur after the TRIX reaches zero. There is a possibility that this level may be reached in the relative near-term, possible once we've seen the end of the summer decline.
A sharp decline in silver’s price could cause a substantial decline in the TRIX, which would be a healthy and normal development for the market. The coming decline might appear scary at the first sight, but if it does materialize - please keep in mind that it's something that will allow the market to move even higher in the long run.
Previous "second" rallies for the white metal have often been followed by declines after silver failed to move above previous highs. After that we've used to see corrections that took silver much lower - correcting 50% of the preceding rally. Silver may or may not get this low in its next decline.
The current retracement level is based on the 2008 low and the 2010 high. Since the 2008 decline was generally an unordinary development, the $14 target (as visible on the chart above at the 50% retracement) might be too low, and perhaps the $16 level would hold.
Summing up: Technically, lower silver prices will be healthy not only for silver but also for gold and mining stocks as well. We have seen massive rallies quickly follow severe declines in silver’s price. This may, in turn, eventually lead to higher silver prices, possibly the next rally would take silver to $25 - $35 area.
Disclosure: No positions
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