Originally published December 17th, 2007

In the last Silver Market update on 2nd December it was stated that if dollar strength continued as expected, silver could drop below the support zone centered on $14 and head lower towards the next support level in the $13.25 - $13.50 area. Since that time it has held up above the $14 support zone, but it dropped quite sharply late last week on renewed dollar strength and at the time of writing on Sunday 16th it has just broken below this support.

On the 6-month chart we can see how today's drop signals that the reactive phase that began early in November is continuing, with the break of the support calling for probable further short-term weakness that is likely to take silver down to the next support level shown quite quickly, resulting in it being oversold. There the reaction should terminate and silver is expected to then turn up and begin a new uptrend. This fits with the outlook for the dollar, set out in the Gold Market update, whose predicted snapback rally is now at quite an advanced stage, meaning that after some further progress it is likely to turn lower again, which would of course take the brakes off gold and silver. Buyers of silver on a decline to the support level should limit downside risk by placing a stop just below $13.00.

The 3-year chart reveals that after the early November breakout attempt, the price has slumped back into the large trading range that started to form after the May 2006 peak. The real action in silver will start once it finally breaks out upside from this range, and especially when it breaks out of this pattern against the Euro.