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.
[dropcap]S[/dropcap]ilver 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.