TECHNICAL FORECAST: Silver appears ready for a big dive as other precious metals weaken, as U.S. Dollar soars and as negative environment grows in other markets.
Summary: The silver price fell back today, the September contract closing at $4.243 from $4.265 on Friday. Silver is now only half a cent away from 4 year lows (made on Thursday of last week). We have now broken below what was previously support - if this is sustained as appears likely, we could see silver well under $4 and as low as $3.50 before we see major support again.
The open interest rose slightly as of Friday to 71,787 contracts, still not too far from recent low levels of about 65,000.
Silver is in a long term declining trend which could take it much lower. This appears especially true since the other precious metals, gold and platinum remain at low levels and have also been weak lately. Click for the September Silver Daily Chart.
The short term indicators are definitely negative now, although they are approaching oversold. However, in the present negative environment, with gold and platinum making recent lows as well, we could see silver remain oversold for weeks as it has done before during periods of decline.
This week's (July 9) Commitment of Traders Report continues to be bearish. The combined long position of all speculators is at 73% (vs. 72% last week) of the total open positions while the combined short position of all speculators is 55% (vs. 49% last week).
As silver continues to make new lows, it is likely the next thing we'll see is short speculators coming into all the precious metals markets, gold, silver and platinum. Every rally we have seen in the silver market during the past 4 years or so has failed. Now that May's rally has also done the same, we will probably see again what we have seen after the other failed rallies, namely short speculators coming into the market and pushing the price down.
There is also the very likely prospect of the long speculators selling out their positions. Long speculators have outnumbered the shorts for a long time, even as the price has been declining, so it is likely we will eventually see them throw in the towel, selling out their positions and adding further pressure on prices.
Since silver is sometimes considered an industrial metal (as well as a precious metal), it is likely to affected by the slowing economy and the falling stock market. The obvious worldwide slowdown is another factor contributing to silver's decline.
Both the longer term technical factors and the fundamental supply and demand factors are extremely bearish. We have included silver on our "Speculators Only" page since July and we continue to keep it there. The future looks very ominous for both gold and silver.
Those Speculators who want to take advantage of the decline can buy PUT options, SELL Call options, sell futures contracts, buy PUT or SELL Call options on mining companies, etc., or any combination of them.
Recent news included the report that Eastman Kodak, one the biggest buyers of silver in the U.S.,, has already hedged its needs for the coming year, 2001, thus eliminating a big potential source of buying.
The fundamental factors, like the gold, continue to be very negative. Mexico, one of the world's largest silver producers announced another increase in production, up 7.3% over last year's big production month, following a 39.8% increase earlier this year while Peru, another large producer increased its silver production by 18%, while all of Pan America increased last year by 11.6% at a time of slowing economic conditions.
Adding to bearish fundamental news in recent months was a report that China's silver exports rose by 700% (yes, 700%) in the first quarter of this year. Other fundamentals remain poor, lots of supply with miners increasing production, probably to take advantage of the price before it weakens even more. There are reports from Eastman Kodak of film sales declining. Film is one of the biggest users of silver in the U.S., so with declining film sales, there is less demand for silver.
The production costs in Mexico and South America average between $3.50 and $4.00 an ounce or less, a long way under the present price, so we are not likely to see reduced production because of the present low price, still profitable for many producers.
Click here for the latest silver price (September contract), including night trading beginning at 4 P.M. New York time on weekdays (except Fridays) and 7 P.M. on Sundays, one half hour delayed.
Click here for a long term look at Silver (Monthly Chart) (updated monthly) or click for the Silver Weekly Chart (updated weekly).
Declining or rising prices in the Gold or Platinum markets usually influence the silver market.
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