The silver support level in the $16.00 - $16.50 area finally buckled on Friday in the face of the dollar spike leading to a rapid plunge that has taken the price below its 300-day moving average. We can see this development on the 1-year chart, and how it has opened up the risk of a continued decline to the next support level in the $14 area.

Although the dollar is already entering extremely overbought territory that is expected to lead to a reversal soon, there is room for it to continue to advance short-term, which would likely lead to gold following suit and crashing its support, and silver dropping back to the $14 area. That said we should keep in mind that it is already deeply oversold and near its 300-day moving average, and could reverse to the upside at any time, in sync with a dollar reversal to the downside.

If silver drops to the $14 area as expected over the short-term it will be viewed as a strong buy as this should mark the end of the downtrend. This would be expected to coincide with Precious Metals stocks bottoming out as signified by the HUI index dropping to the 280 area and the XAU index dropping to the 125 area.

By Clive Maund
CliveMaund.com

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© 2008 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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