Silver and COT

April 9, 2005

Acknowledgment: Mr Ted Butler's most recent article drew my attention once again to the relationship between outstanding Commitment of Traders contracts and subsequent price movement is the silver price.

The following chart (Source: Shows the Commitments of Traders in the Silver Market

When read together with the chart below, the following (rough) numbers emerge:

It seems clear from the table above that when Non Commercial Traders are heavily into the market (the Commercials are heavily short), the price subsequently falls, and vice versa.

Using Mr Butler's logic, given that the non commercial longs are fairly tentatively into the market at present, the next significant move in silver is likely to be "Up"

In the context of the following P&F Chart (Source:$SILVER,PLPBDANRBO[PA][D20050408][F1!3!3!!2!20]&pref=G ) , and given that the price is currently close to its rising trendline, it looks like the bull trend could soon start to re-emerge.

Based on horizontal count measuring techniques, a break above $7.50 could yield a destination of $8.50 and, if this level is penetrated to the upside, the upside target based on the vertical count technique appears to be $9.61


If Mr Butler's logic is correct, we might be about to witness the beginning of high volatility in the markets that is being suggested by other charts - with Precious Metals rising, and other equities falling in relative terms.

Of concern - and flowing from the following chart which shows an extended period of horizontal consolidation of the ratio of Gold to the Dow Jones Industrial Index - is the fact that a break "up" of this ratio implies a potentially significant fall in the Equities Markets (The chart is calling for a 39% "relative" move in the two counters based on the horizontal count technique - which is coincidentally consistent with the same target based on the vertical count technique)

From the following chart of the Dow Jones Industrials, a further fall from this point will give rise to a "high pole reversal" signal, which implies a serious anticipated fall in the Industrial Average.

Overall Conclusion

It looks like Silver will outperform a relatively modestly rising gold price in the coming period of volatility. One place not to be invested, is in Industrial Equities.

Gold falls on firm dollar, China rate cut lends support