Fundamentally, yesterday's breakout was due to the realization in the markets that QE is set to continue, whether called QE or not and, in fact, it must continue, as any attempt to apply the brakes at this late stage would result in a global systemic economic collapse. Hyperinflation will be the inevitable end result, as will prices for gold and silver at levels that many now would consider to belong solely in the realms of fantasy. We already had a foretaste of this coming ramp in Precious Metal prices earlier this year with the big run-up in silver prices, before powerful interests decided the time was right to put the boot into the little guy by repeatedly hiking margin requirements over a short period. This served big money interests in two waysfirst it crashed the silver price so that they can move in and scoop up more of it. Secondly, big money is not all at concerned about margin requirements due to being wealthy in the first place; they don't need to bother with margin at all, though it suits them to use it at times to maximize leverage.
What the hiked margin requirements did do was to throw the little guy off the train, and like one of those old westerns big money is stood at the open end of the train carriage lighting up a cigar and grinning with satisfaction as the little guy rolls down the embankment and is left lying in the dust as the train chugs off into the distance without him.
Our 6-month chart for iShares, which is a good proxy for silver, shows the now extraordinarily bullish setup for silver. For some weeks it was not clear whether the C wave of the now completed A-B-C correction would take the silver price below the A wave low in May, which for iShares was exactly at $32, and had Greece not been bandaged up it would have, of course. The first sign of improvement was the breakout from the C wave downtrend channel about a week ago, after which the price was temporarily restrained by unfavorably aligned (falling) 50-day moving average, which forced a test of support at the top line of the channel, which we correctly anticipated. Then just yesterday the price blasted through the 50-day moving average on the highest volume for weeks, the importance of the resistance in the vicinity of this average being illustrated by the way the price gapped above it—a bullish "breakaway" gap. This is what we have been waiting for. This marks the end of the intermediate base-building phase and the start of the next major uptrend.
The picture could not be more bullish. The price and its 50-day moving average have corrected back almost to the rising 200-day moving average, which is now coming into play to support a major advance. The volume pattern during the base building process has been positive, with volume contracting, and the Accum-Distrib line shown at the top of the chart rising, indicating accumulation. Finally, the COT charts are at their most bullish for ages with commercial short and large spec long positions being at their lowest levels for a very long time.
The lower COT chart is courtesy of the renowned Scarborough Bullion Desk in England.
Silver Market Update