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.

Other Factors

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.

Conclusions

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.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

Copyright © 2012 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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