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Precious Metals Market: Silver Reverses Friday
0Friday saw a dramatic day in the precious metals market. In the aftermath of the US retaliatory strike on Syria, gold, and silver both rose sharply. They were higher in the overnight hours early Friday morning. Then, a reverse lower by the close of trading for the week.
Precious Metals Market
In general, short-term political and/or terrorism-related market reactions tend to be short-lived. Friday was no exception. Let us turn to an examination of the silver market. We see the most dramatic move on Friday. For the week as a whole, silver underperformed against gold. It finishes lower by $0.30 (1.7%). The final trade on the New York electronic access market was $17.96. 
By failing to overcome the $18.50 - $19.00 first resistance zone (black lines), this resistance level takes on increasing importance going forward. On any further weakness, we expect the $16.75 to $17.25 region to act as support at the low range. 
The trading on Friday is worthy of further discussion. There has been mention in other areas within the precious metals investment world that the decline on Friday was entirely due to “manipulation.” We examine the intraday price action. It appears clear that this was not a regular trading pattern.
On Manipulation
If you are reading this article, you demonstrate an interest in profiting from these markets. You aren't merely sitting idly as a passive victim of manipulation. We aim to thrive, not to be victims. Some manipulate a market so that it can never advance in our favor. We should move onto another market to strike back. We are involved in precious metals because we know that the sum of the participants is stronger than any suppression. Manipulation may exist, but it is not stronger than the market itself. It is no coincidence that the high selling took place just below the $18.50 level. Our charts have previously identified this resistance level. This is a significant swing high from February. The sellers appear in this region once again. We now switch over to the trading desk chart. We will examine the intraday volume on Friday:
A buying gap did appear in the trading on Friday afternoon.
However, the volume on Friday’s decline was not abnormally high. You can see this on the chart. The volume was higher at times during the consolidation. There was an advance of the preceding two days. When a drop such as this happens on moderate volume, it indicates sellers with relatively few buyers. This is not that an inordinate amount of sellers. Such a reversal lower average volume means that buyers were exhausted from the previous advance. When buyers see exhaustion, by definition only sellers remain. Thus, even a moderate amount of selling off can cause a significant drop such as on Friday.
This is exactly the type of trading action that constitutes a consolidation.
Sellers are making it clear where they desire to sell. Now we take a step back and observe where the next round of buyers shows up. Something happens at each successive attempt to overcome the $18.50 - $19.00 resistance zone. The futures contracts and physical metal transfer from weak hands to strong. When enough silver transfers in this way – the next advance will see an absence of sellers at the resistance zone. The price can then advance to a new relative high. Consolidations such as this are incredibly healthy. Linear advances higher tend not to sustain. We see this in 1H 2016. On the contrary, advances followed by consolidations allow a market to move higher over the long run. This is without drawing too much attention. Or, without the extreme swings seen last year. Longer-term investors should not fear to see a well-defined consolidation continuing at this juncture.
What Do the Silver Miners Say?
It is sometimes beneficial to monitor the relative trading action in the silver mining sector. Then we compare it to the price of silver bullion itself. These are two components of the same industry. We sometimes see divergences that give us hints as to which direction the markets may be moving. This is over the intermediate term. Let's focus for a moment specifically on the silver miners. They tend to exaggerate declines in silver lower if they are expecting sustained weakness. We note that the miners mostly brushed off the steep drop seen on Friday afternoon in silver bullion.
On the right, we show the SIL silver miners fund on top. The SLV fund is on the bottom. (silver proxy).
Note how the miners close within the mid-range of the week’s trading. Whereas we see silver bullion closes lower than the week’s trading range. This is the type of divergence we should expect. This is especially if the miners are not anticipating sustained further weakness in silver bullion.
Silver investors can monitor this relationship to gain some insight as to what may become.
At least over the short run, and after a successful silver retest, the mining equities appear not to believe silver will be falling much further. If we see a return to the previous consolidation zone between initial support ($16.75 - $17.25) and initial resistance ($18.50 - $19.00)--it will represent strong basing action from a long-term investment perspective. The old investment adage goes: “The longer the base, the bigger the move.”
More articles:
Understanding Premiums on Precious Metals
GOLD, SILVER, AND BITCOIN PRICES, DAILY MARKET NEWS. APRIL 2024.
Christopher Aaron, Bullion Exchanges Market Analyst
Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. He specialized in the creation and interpretation of the pattern of- life mapping in Afghanistan and Iraq. Technical analysis shares many similarities with mapping. They both base on the observations of repeating and embedded patterns in human nature. His strategy of blending behavioral and technical analysis has helped him and his clients. Helping to identify both long-term market cycles and short-term opportunities for profit. This article is a third-party analysis. It does not necessarily match the views of the Bullion Exchanges. Readers should not consider it as financial advice in any way.
