While it’s big brother gold struggles to keep its head above the $1200/ounce mark, silver has cleanly snapped support and broken down to its lowest levels since Spring 2010:

Click to enlarge

SLV (Weekly)

SLV_Weekly_9.30.2014

The breakdown from the descending triangle currently targets the $15-$15.50 area – it is important to note that, according to Bulkowski, breakdowns from descending triangles only achieve their targets 54% of the time and false breakdowns occur quite often from this pattern. 

Some argue that with the marginal cost of silver production at roughly $20/ounce, the price of silver can’t fall much farther. While it is true that if the silver price remains in the $17-$18 range for an extended period of time there will be little new silver exploration and many higher cost mines will be forced to shut down, thus cutting supply down drastically. In the near term investor liquidations can push prices to extremes that do not align with long-term supply/demand fundamentals. We may be quickly approaching such a moment in the silver market.

A few things that could signal that the time is right for long-term investors to step up and buy silver in size:

  • Signs of panic liquidation (heavy volume selling accompanied by large price gaps to the downside)
  • Hedge fund closings (reports of commodity hedge fund unwind of precious metals positions)
  • Price moves below the 3-standard deviation Bollinger band (currently near $16.50 for spot silver on the daily chart) – this has historically almost always led to a short term price bottom and a rally
  • Small speculators move to a net short position in silver futures – something that has only happened once before (June 2013 which came within one week of a major bottom) and would be a sign of extreme bearish sentiment – this Friday’s CoT report becomes much more interesting after today’s huge sell-off