Spot silver has reverted to its “mean” — the spot gold price plotted against weekly silver. Reaction to the GFC was far more severe than gold in 2008 as industrial demand for silver slowed. Breakout above $20/ounce in 2010, however, ignited a steep ascent to $50. The inevitable blow-off followed and silver has now reverted to its 2007 ratio to the gold price. However, Newton’s Third Law of Motion — for every action, there is an equal and opposite reaction — has an equivalent in financial markets: if price over-shoots in one direction, the reaction/correction is likely to overshoot in the opposite direction. Expect another test of primary support at $26. Failure of that level would offer a target of $16/ounce*.
* Target calculation: 26 – ( 36 – 26 ) = 16