- The rebound that got going in mid-December has climbed $2.5 per oz in two main upwaves; the second wave may just be starting to end judging by today’s weakness and the drop in the stochastics. See the previous drop in the stochastics. That said, any reversal of today’s weakness could change the developing chart picture.
- We remain bullish in the medium term; the inverse H&S pattern has a target of $18.95 per oz and the 20 DMA is climbing steadily.
- However, we would not be surprised to see a pullback to test support either at the 20 DMA, the neckline, or the UTL.
The fact silver has managed to accelerate higher while the dollar has been strengthening is noteworthy. With base metals generally rallying too, it looks as though silver is attracting industrial buying.
Last week’s CFTC data, up to the close on February 14, showed the net long fund position (NLFP) climbed 6,535 contracts to 84,812 contracts. This was the seventh consecutive week where the funds have been net buyers. Shorts have been cutting exposure for six weeks and the longs have been adding positions for eight weeks. At 104,765 contracts, the gross long position is still some way below last year’s peak of 123,737 contracts and the short position at 19,953 contracts is in low ground, the lowest since 2014 has been 12,375, while the highest has been 63,993 contracts.
The fact gold prices are holding up well, almost regardless of the dollar, and that dips have been short-lived and shallow also portrays a robust market. Overall, we still feel that bullion will remain sought-after as a safe haven in the days and weeks ahead. This is especially the case while geopolitical uncertainties are growing with the UK getting closer to Brexit, Greece facing debt repayment issues, Europe facing elections and US President Trump settling into his new role.
That said, prices rarely travel in straight lines so we should expect pullbacks along the way.
The sell-off in the second half of last year was significant but the downtrend looks to be over. The rebound now looks more than merely another counter-trend move and is more likely to be the start of a bull market, although to-date prices have rallied 16% rather than the 20% required to call it a bull market officially. That said, in the short term the latest up-leg is looking tired, the stochastics have swung lower and another show of dollar strength may act as a headwind, so we would not be surprised to see prices consolidate at lower numbers; but we expect dips will be well supported.