Is Silver Facing a Breakout or a Final Bottom?

Last week the price of silver climbed to an over-two-week high after the US Federal Reserve Chairman said the huge stimulus program would stay in place for some time. Right now, the main focus is on Bernanke's testimony to the Congress later this week, which should give more guidance to whether tapering will start in September or December.

By Przemyslaw Radomski, CFA
Jul 16, 2013 10:50 am
Minyanville

Last week the price of the white metal climbed to an over-two-week high after the US Federal Reserve Chairman said the huge stimulus program would stay in place for some time. Investors are now focused on Ben Bernanke once again.

"The main focus is Bernanke's testimony to the Congress, and that should really give us more guidance to whether tapering will start in September or December," Danske Bank analyst Christin Tuxen said.

Could this above-mentioned event trigger a breakout above the important resistance level? Or maybe the worst is not behind us and we will see further declines in silver?

Recently, there has been much talk about gold’s price. This has pushed silver a little bit to the side, which my firm doesn't think is quite fair. Because of that, we devote our analysis today solely to the white metal. Let’s take a look at the charts and find out what the current outlook for silver is.

Today we will start with analysis of silver long-term (charts courtesy of http://stockcharts.com).

long term silver

In this week’s very long-term silver chart, we have a situation somewhat similar to what we saw happen with gold last week. Silver also moved higher and attempted to move above the declining resistance line, finally closing right at it (a few cents below the $20 level) without breaking it.

Technically, at this time we have no breakout, so the situation remains bearish (even the short-term trend). The downtrend will remain in place here unless silver can increase and hold a breakout above the $20.70 price level (this is a short-term resistance level based on the intra-day highs).

In the recent days we haven’t seen such action. Therefore, in our opinion last week’s rally was nothing more than a contratrend bounce.

Once we know the current situation in silver, we think it would be interesting to revisit the silver-to-gold ratio to see how the two are valued relative to each other.

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