Both silver’s price action and its latest COTs suggest that it has just put in a short to medium-term top, a view which is reinforced by what we are seeing in gold, where COTs just hit a record extreme. Long-term the outlook for both gold and silver remains very bright, due to the eventual demise of the current fiat money system, which now out of control and in its terminal phase.
On silver’s 1-year chart, a time period selected so that you can make direct comparison with the COT chart beneath, which also goes back a year, we can see that silver has just turned around beneath resistance at its early May highs, with a pronounced reversal candlestick appearing on Thursday, whose bearish implications were not negated by Friday’s rebound. Since the uptrend that began at the start of the year remains intact, however, and its moving averages are in bullish alignment, we should not at this stage look for more downside than back to the support level shown below $16. The bearish COTs do indicate that it could drop more on dollar strength though, so we should keep that in mind.
On the latest COT chart we can see that last week Commercial short and Large Spec long positions climbed back towards recent record extremes, which bodes ill for the short to medium-term. Silver is therefore believed to be peaking here, and is expected to drop back at least to the support level beneath $16.
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If you think that silver’s latest COT chart doesn’t look too bad because, unlike gold, it has not arrived back at the extremes reached during May, you should try taking a look at the latest Hedgers chart, a form of COT chart, which goes back much further than the COT chart. Here we see that Hedgers’ positions are at their most extreme for at least 9 years. Normally this calls for a reversal and significant drop.
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Chart courtesy of www.sentimentrader.com
The rally of the past few weeks has resulted in the silver Optix chart rising back towards bearish extremes, a situation that calls for caution…
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Chart courtesy of www.sentimentrader.com
The overriding reason that silver looks set to drop back is the same as that for gold - namely that the dollar appears to be shaping up for a substantial rally, for reasons that are discussed at some length in the parallel Gold Market update.
Conclusion: an intermediate top is believed to be completing in silver that should lead to a significant drop, and perhaps a big drop, depending on what happens to the dollar, which itself depends in large part on the euro, and thus on the outcome of the Brexit vote next week. Since COTs for both gold and silver suggest that a sizeable reaction is in the works, the implication is that the “leave” vote will exceed the “remain” vote.
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