Palm Beach’s Michel de Chabert-Ostland called yesterday to ask me if I had heard anything about limit position changes for silver. Michel is a superb technical trader and wondered if something might be correspondingly going on fundamentally because his technicals on silver were SCREAMINGLY BULLISH and he was mega long!!! No clue I told him.

One thing for sure, the silver action so far this year is a far cry from what we saw most of last year. Yesterday it cleared, and closed above, some decent resistance at $17.50 and today it blew through more significant resistance at $18 with ease.

It is very refreshing to see BOTH gold AND silver trading in sync to the upside.

More on silver from RG in England…

Bill,
Like a keen student fresh and battery charged from the Festive Hols, I’ve been pouring through the graphs in the last few days in order to determine the near term direction in my favourite metal as we set sail into this new decade.

It looks to me like Silver’s building up for a big move in the next month or so, possibly sooner!

What is it they say over the intercom when a train’s about to leave the station? ‘Can all personnel not wishing to travel on this train leave their carriage now’.

Now there’s no intercom set up here between my Scarborough Bullion Desk and the Chicago Silver Pit, but if there was my guess is it would be bleating repetitively ‘This is the last call for all shorts to exit their positions, I repeat this is the last call for all shorts to exit their positions, I repeat this’.

Take a look at the graphs below and judge for yourself.

Chart 1 shows the price of silver against it’s RSI below (Relative Strength Index), Notice the definitive wedge in the RSI graph that’s been forming for some time now, Whilst the wedge is narrowing, there’s still potentially a few more months left to play out in this wedge, which might mean further consolidation in the silver price for a while longer.

However outside of the relative sanguinity of Graph 1, wheels appear to be turning elsewhere.

Chart 2 shows the ratio of Gold to Silver, Notice how Silver has been outperforming Gold since the start of 2009, although the annual declining trend line was broken in December, However instead of this leading to an aggressive sell off in Silver relative to Gold which one might have expected, the ratio has in fact held the trend line and presently sits back below it again! I see this as tremendously positive action for silver and for the future direction of the whole Precious Metals complex.

One clue to this ‘fake out’ might come from the RSI, As you can clearly see, whilst the Ratio broke above it’s declining trend line, this move was not confirmed by the action in it’s RSI which remained within it’s clearly formed wedge consolidation pattern. Moving to the present day and one can see that this same RSI has now fallen out of the bottom of the wedge and while only marginal at this stage it is pointing to further downside moves for the direction of the Ratio.

Why should this matter?

Well moving on to Chart 3 below, which highlights the Gold/Silver Ratio (Black Line) against the Price of Silver (Red Line), one can see that these downward breaks in the RSI trends, have led almost every time to a significant rise in the price of silver, The only exception was in the summer of 2005, where further consolidation was needed before the spike upwards in the latter part of that year, However even on that occasion, one would have still bought one’s silver safely at very close to it’s 6 month low!

While these downward breaks in the Ratio’s RSI index favour silver to gold, Chart 4 below, which charts the ratio (Black Line) against the price of Gold (Red Line), shows clearly that ‘What is good for the Gander is good for the Goose as well’!

One caveat that must be highlighted to this chart analysis above is that the break down on the RSI indexes is juvenile and minor at this stage, Charts 3 and 4 are weekly charts and as we’re only half way through this ‘breakdown week’ it is imperative to see how the charts look at the close of this week before making firmer conclusions.

However that aside, action in other areas of the silver sector are also flashing Green Lights.