Originally published April 6th, 2008.

Although silver dropped back quite sharply last week as expected, in tune with gold, it was interesting to observe that the decline halted EXACTLY at its channel support line shown on our 1-year chart, and that it did not drop below its mid-March low on a closing basis. These are signs that it may just have bottomed, especially as it is now noticeably outperforming gold. What this means is that even if gold goes on to drop towards our intermediate maximum downside target in the $830 - $850 zone, silver may not react much further and might hold above last week's low. Traders should be remain aware of this and depending on how it pans out in the near future could aim to buy close to last week's lows with a tight stop, possibly re-entering the position in the event of being shaken out by a short-lived drop to lower levels, on subsequent strength.

Normally, the failure of a parabolic uptrend such as we have recently witnessed with silver means that "the show's over" for a while, and for reasons discussed in the Gold Market update, gold and silver may have to surrender the limelight to the broad stockmarket in the weeks ahead, although because of the highly inflationary backdrop, they are unlikely to give up much more ground, and Precious Metals stocks, which showed great resilience last week for the first time in ages, may actually firm as the rising tide of electronically created money lifts all boats.

In conclusion, we may just have seen the low in silver. The worst case is a breach of the trendline followed by failure of the support level leading to a decline back towards the next support level near the 200-day moving average where, should it get that far, it would be viewed as strong buy. Action in Precious Metals stocks suggests that it is unlikely to break below the current support level.