Short Covering from panicked speculators has led to a sharp rise in silver prices that is also drawing in new buyers who chase momentum.
Note that hedge funds while remaining net longs, had also begun playing silver from the short side as the European sovereign debt crisis had most investors looking at the slowing economic growth environment as one in which to short both copper and silver. Yesterday's change of wording in the FOMC Statement sent shock waves through the shorts who ran like hell setting the stage for a signficant amount of technically related buying in today's session which commenced in Asian trade last evening.
I am expecting the following chart to change significantly in tomorrow's COT report, even though it will only capture this Tuesday's price action and not the big upmoves Wednesday and today.
We should note here that around noon Chicago time, St. Louis Fed President Bullard, seemed to put the kibosh on the QE 3 party. That promptly took the wind out of the bulls' sails dropping crude oil into negative territory and dragging gasoline lower with it. Silver and then gold both dropped off their best levels during this time frame however both markets remain solidly higher heading into their pit session closes.
With the US equity markets falling apart on Bullard's comments, we will have to keep an eye on the mining sector shares as represented by the HUI to see if they can hold their gains. Both gold and silver bulls will not want to see the HUI go negative after pushing to a significant chart resistance level at the 460 point. Short term oriented traders will sell the shares if this index cannot continue to push past this stubborn 460 level.
Silver needs to close out the week on a strong note to punch through the downtrending resistance line noted on this weekly chart. The ability to put a handle of "30" in front of the price is extremely helpful from both a psychological and technical perspective but a solid trending move is still not yet in the cards until silver can decisively gain the $32.50 level. Even at that, dip buyers should begin making their appearance in this market as the technical posture has changed significantly this week.
Dan Norcini
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