Pitfalls of Silver Price Technical Analysis
Technical analysis of the financial and commodity markets has been used effectively by traders to analyze price movements of commodities and stocks for hundreds of years. Despite being one of the most effective methods for forecasting future price movements, technical analysis can break down and give conflicting signals when certain events occur.
This seems especially true in the silver market, where a number of factors have changed that precious metal’s trading dynamic. Reading silver’s future can be more accurately done by interpreting a combination of factors, which include price action and participant positioning.
Latest Trends in the Silver Market
As previously mentioned, a number of different factors are contributing to price movements in the silver market. To a person unfamiliar with recent developments, these factors might make market moves appear counter intuitive.
For example, large commercial traders are currently positioned for higher prices, while recent downward price momentum has hedge funds and speculators adding to the downside price pressure.
Furthermore, the ongoing investigations by the CFTC into the manipulation of the silver market have remained inconclusive in terms of identifying any wrongdoing. This is despite the fact that a number of incidences of large “not for profit” orders have moved the silver market substantially since the CFTC’s investigations were initiated.
The CFTC has also stalled on setting position limits for silver with a legal challenge, which may affect the tentative limits on positions in 60 days. With each passing day, as more financial institutions get caught in dubious acts affecting the market— such as the LIBOR scandal, MF Global, and now Peregrine Financial Group — manipulation of the precious metals and other markets is becoming harder to perpetuate.
In addition to the above, no results have been achieved in the class action lawsuits against JP Morgan Chase and HSBC, with the lawsuits largely being ignored by the courts. With JP Morgan set to announce a 5 billion trading loss, and a new financial scandal appearing almost on a weekly basis, precious metals prices seem primed for a rally.
Furthermore, as Spain raises its VAT tax from 18% to 21% and riots are fomenting in the streets of Madrid, the Eurozone’s ongoing sovereign debt crisis and the reduction of open interest in both gold and silver futures contracts indicate an imminent rise in precious metals prices is now likely.
Given the aforementioned situation, the following conclusions seem reasonable:
• A strategy of continuing the accumulation of silver with dollar cost averaging would probably be best considering current market and geopolitical conditions. • The structure of the Commitment of Traders report does not give indications of future prices for precious metals, but it can give indications. • Because traders generally watch the same technical data, technical analysis is a tool that can drive speculators to enter or exit the market. • It seems only a matter of time before the realities of true supply and demand will eventually move precious metals futures prices to the prevailing street or retail level for the physical metal.
Overall, the case remains strong for holding and accumulating precious metals like silver while prices remain artificially depressed due to market manipulation.
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