NIA Calls Silver Bottom, Short Squeeze Ahead

Last week was a wild one for precious metals, with four straight days of modest declines followed by a massive reversal at the very end of week, which could translate into huge gains next week.

Silver futures started off last week by declining on four consecutive trading days from an April 25th closing price of $19.69 per oz, down to a May 1st low of $18.75 per oz, where silver was down for the week by as much as $0.94 or 4.8%. After reaching an intraday low on Thursday of $18.75 per oz, silver futures bounced by $0.24 per oz to a Thursday closing price of $18.99 per oz – before rising $0.50 per oz on Friday to finish last week at $19.49 per oz – up $0.74 or 3.9% from its Thursday low, and only down $0.20 or 1% for the week.

Silver reached a medium-term bottom on June 27, 2013, of $18.54 per oz, which at the time was a new 34-month low. Afterwards, silver made an extremely impressive two month bounce, rising to a short-term peak on August 27th of $24.65 per oz for a gain of 33%. Silver retraced back down to a short-term bottom on December 4th of $18.85 per oz, but never retested $18.54.

It’s an extremely bullish sign that despite silver dipping last week to below its previous short-term bottom from December of $18.85 per oz, it quickly bottomed at $18.75 per oz without retesting its medium-term bottom from June of $18.54 per oz. In NIA’s opinion, when silver dipped below $18.85 per oz on Thursday, it set a “bear trap” – causing many investors to sell silver short, believing a decline to $18.54 per oz was imminent and if $18.54 didn’t hold – a sharp decline to $15 per oz would follow.

Any investors who fell for this bear trap most likely made a major mistake, by shorting silver at the worst possible time. The rapid bounce that began on Thursday afternoon and Friday could be the start of a major silver short squeeze that quickly takes silver back towards $25 per oz. NIA believes we are unlikely to ever see $18.75 per oz silver again and it will hold as silver’s final short-term bottom. A solid foundation has been built for silver to make another move to $50 per oz over the next 24 months.