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Silver ( And Gold ) Preparing To Rally Higher

Silver futures - daily chart

Longer term investors in both gold and silver have no doubt become increasingly frustrated over the last few months, as first the metals gain some bullish momentum, only to see this promptly reversed with a return of bearish sentiment. For speculative traders of course, these short terms trends offer excellent trading opportunities, and the price action for both metals, at the end of last week, suggests yet another 'mini trend' now awaits. And what follows for silver will be reflected in gold, which has followed a similar pattern of both price action and volume.

Focusing on the daily chart for silver, there are several key signals which have now combined to suggest that we are likely to see silver prices recover some bullish momentum in the next few weeks - good news for gold bugs. Thursday's price candle was the call to action, with the deep lower wick and extreme volume clearly signalling buyers moving into the market strongly at the $19 per ounce level following the reversal from the highs of late February and early March. A falling market associated with falling volumes, is a sure sign that the trend is weak and exhausted as the big operators prepare to buy, as evidenced on Thursday. This buying was also evident earlier in the week, with Monday's down candle associated with low volume, and Tuesday's narrow spread doji candle on above average volume, both pre-cursors to Thursday's buying. Finally, silver has been building a solid platform in the $19 per ounce area, which should now provide the springboard for the move higher.

The key support and resistance levels are now clearly defined on the volume at price histogram on the left of the chart, with the initial target being the $20.20 per ounce level, and once this is breached, then this will provide the requisite platform of support for a sustained move higher, and back to test the resistance level now in place in the $21.00 per ounce level. Provided the move higher is associated on strong and rising volumes, as we saw in February, then we can expect to see the trend develop over the next few weeks. Not perhaps a super trend for longer term investors, but for intraday traders and speculators, enough to take some profits over the next few weeks.

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