Silver Showing Some Signs of Bottoming?

I want to stress that the grey metal has NOT YET confirmed this however. It is showing some stability here just above $16.50 as it oscillates around the $17 level.

I have noted two resistance levels that have formed on the chart. The first comes in near $17.50; the latter, and the more formidable, shows up at $18. If the bulls can push the price up past both levels, we will some significant short covering.

The reason for the comments is that Monday's bizarre trading day in which the US Dollar completely erased all of its strong gains from last Friday's jobs report, sent the entire commodity complex soaring higher. That wild day impacted the price charts of many individual commodities ( remember that 30 cent rally in the beans?) and painted some chart patterns that have the pure technically-oriented traders perking up.

Remember, our markets are run by computers and these computers are "pure technicians" in the sense that they do not care, nor do they consult, fundamentals. As such one cannot ignore technical developments in markets.

With the Goldman Sachs Commodity Index continuing to swoon ( it is threatening to take out a 27 month low today!) it is difficult for me to envision silver mounting any kind of sustained rally, especially with copper having trouble near the $3.00 mark. Still, bears will need to be alert to any violations of those upside resistance levels.

I should note that Australia's Perth Mint reported some very strong sales of its silver coin ( 757,000 ounces in September and 819,000 in August). According to Dow Jones that was double what it had been selling a the few previous months.

While that is good news it is not enough to shift the sentiment towards the metal overall at this point. Silver needs a STRONG Economy with lots of industrial demand ( think cell phones, tablets, electronics, etc.) and growth to spur it strongly higher. I know I shall incur the wrath of the silver perma-bulls with this next comment but frankly I do not view silver as a safe haven. It is too bulky and too hard to transport in size. For a store of value in inflationary times however, it can be quite good.

For now, perhaps the market has found a level above which it is comfortable trading with prices having fallen far enough for the time being. Given its 23% plunge in price in three months time,  it is not unreasonable to see some consolidative type trade.

With the FOMC on tap, there is no telling what we will get. The market could make another fresh leg lower or it could take out resistance and move higher. I simply do not know.

One quick comment and chart - Unleaded Gasoline scored a 46 month low in price today! I for one am quite happy to see this and I am sure a whole lotta other consumers are as well.

As I said above, this underscores the deflationary type environment we are seeing in the commodity complex which is why I am a skeptic when it comes to silver. I will say this - if silver does fall below that low from Monday this week and especially below last Friday's low near $16.64, I would not rule out a further fall to near $15.00.