How long until silver breaks out of its consolidation phase and heads higher?

If you look at the graph below you can clearly see the mini-spike in silver prices last April and the sideways consolidation since then. There was no true spike in prices because there has been no subsequent collapse. Indeed, the silver price has been well supported in the $30-35 an ounce range.

However, the price has taken some very gradual steps lower. It may be that we see at least one more of these steps before the price decline is done. You do not need to be the greatest brain in the sector to imagine what would cause silver to decline from this point.

It is the stock market of course. A seasonal ‘Sell in May and Go Away’ is all it would take to pull the silver price down, perhaps for the last time in this consolidation period. Then again we should also consider what might happen if the stock market rally can find its mojo and take off again.

Gold demand should pick up this week due to the Indian religious calendar and silver prices do tend to follow gold upwards. In fact silver almost always outperforms gold by a factor of two to the upside, and offers reverse disappointment when things go sour.

Turning point?

So there is a good argument that this week could be the turning point for precious metals, other things being equal. Last week the stock market survived quite a battering in terms of poor US economic data, a revival of the eurozone crisis in Spain and bearish noises from China.

You could imagine a picture of better than expected Q1 figures, some more talk about big bailout funds to save Spain and a bit of monetary easing in China, and that could dig the market out of its present funk. The outcome of the talks between Iran and the EU were also rather dovish as ArabianMoney predicted but a hawkish Israel will not be happy about this.

Well we are undecided. The bottom could already be in for precious metals. Certainly money printing is still very high on the agenda – QE3 remains on hold and the IMF is boldly parading its new $400 billion rescue fund. China has plenty of capacity to print more. Japan will follow and the UK knows inflation is the only way out of its crippling debut mountain.

Still the risk is to the downside with the stock market rally looking old and tired. Gold and silver prices, on the other hand, look nicely consolidated for a move higher.

Peter Cooper | April 22, 2012 – 9:19am via Silverseek

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