The technical picture continues to show silver firmly within the bounds of a narrowing trading range with decreasing volatility on a daily chart. This will eventually lead to a breakout and that move will give traders a good indication of what direction to expect the metals to take over the next several weeks.

Over the last 45 days, the upside has been capped by the resistance of a descending trend line extending from the high put in place during the first week of June. There are several key areas of technical resistance including the 21-day moving average and the July (2012) high near $28.45. The bulls should look for a close above $28.50 for confirmation of a breakout.

Strong support enters the picture at $26.10 and a break below that level would indicate a high probability of a major move lower. In the absence of a clear market direction, investors should look to outside indicators that may offer clues as to which way commodities head.

One thing to keep an eye on is the price of crude oil which is now in rally mode and often pulls  the precious metals in the same direction. Israel launched a new round of saber rattling towards Iran which enhanced an already solid bid for crude and has the potential to kick off some safe-haven buying in precious metals.

Another outside influence is the trend in the U.S. dollar which is giving the appearance that its recent strength is beginning to wane. A weaker dollar has the potential to set up the metals for a rally if it persists.

Finally, the pressure is mounting for the Fed to implement another round of quantitative easing to stimulate a tepid U.S. economy ahead of the fall election. Never under estimate the political pressure the Federal Reserve will be under to take action and window-dress the appearance of the economy in an election year.

While there are several factors that point to the potential for a rally in metals, it is too early to forecast a move with any degree of certainty. To stay on top of market developments, keep an eye on today’s live silver prices and charts. For now, traders should wait for prices to break out of the recent trading range and then take positions based on the strength and direction of the move.

If the price can clear the closing high of around $40.32 from June 17th, it could set the stage for a rapid advance to test the highs put in place during the final week of April. Regardless of whether that occurs ahead of the weekend, the market remains at the highest levels seen during the last 60 days. Commodity chart patterns that demonstrate a gradual move up and out of a base like what has occurred over the last two and a half months have a high historical probability of leading to higher prices in the future.

The biggest question the market needs an answer to over the next week to ten days is how the U.S. and European debt issues will be resolved. There is a growing consensus that a favorable resolution could tip the scales in favor of riskier asset classes like stocks over metals in the short-term. While the exit of safe-haven buyers may lead to a few buying opportunities, there appears to be plenty of uncertainty to keep new bids from entering the market on any dips in price. In the event that an agreement cannot be reached prior to the August 2nd deadline, confidence in the financial markets could be shaken for quite some time leading to a major run-up in the price of silver and gold.

On the demand side, the market seems to have priced in somewhat of a hard landing for the economy in China but signs are beginning to emerge that consumption of industrial metals such as gold, silver, and copper is actually increasing. Higher industrial demand is a trend that often pushes prices higher.

For now, a continuation of the uptrend appears likely despite the fact that the current spot price puts the one-month gain for the metal at a staggering 8.6% compared to gold which advanced 2.9% during the same time period. Typically, a period of consolidation occurs after such a strong move while the market builds new areas of technical support.

Typically, silver is a leading metal during a commodity bull market and the recent action in precious metals may offer some clues as to how the global debt crisis will eventually resolve. The financial markets have historically been an excellent predictor of future economic developments and there are no indications that any deviations from that standard are on the horizon.

Traders looking for an entry point can look for a buy signal to be generated on a close above $40.32. An initial protective stop could be placed below yesterday’s closing low around $39.30. Look for a price target of at least $42.25 on a breakout. Remember, retail traders in the United States are no longer able to trade precious metals on margin so alternative options such as the AGQ (ProShares Ultra Silver) are a great way to participate in the market. Be sure to check the main page for updated quotes and charts.

While the overall technical pattern in silver looks very favorable for a continuation of the move to the upside, a short term consolidation period can be expected as the market is beginning to look somewhat extended. Relative strength is now moving into overbought territory so perhaps a pullback to test the new support at the breakout point around $39.30 could be in the cards. As long as this new level of support can hold, a rally upward towards the April high near $50 per ounce appears likely.

The metals may get a bit of a boost from institutional buyers as banks and larger funds move in to take advantage of artificially suppressed pricing resulting from the forced liquidation of leveraged U.S. retail trading accounts ahead of the Dodd-Frank legislation that took effect on Friday at the close. In addition, many of the traders and investors forced out of leveraged accounts may resume buying through alternative investment vehicles such as bullion, exchange traded funds, and mining stocks. Any activity of this kind could keep bids elevated as traders look to maintain long positions in a trend that appears to be gaining momentum.

Those who are looking to take a new position may want to consider the area between $39.30 and $39.50 as an attractive entry point. A trade at this level with a protective stop placed just below the May 25th high around $38.86 would provide a limited amount of risk with a very favorable reward ratio if the market rallies off recent support and eventually moves higher to test the $50 level. The trend in gold and silver prices remains bullish with both metals currently sitting well above the major moving averages. Remember that a reversion to the mean will occur at some point so it is never a good strategy to chase a commodity when it is extended. Wait for a pullback, and always use your stops to give any trade the best possible chance for success.

Precious metals were strong across the board as gold broke out to a new record high after clearing out the last major area of overhead resistance dating back to the April 30th peak. Gold reached a peak of $1588 per ounce early this morning before retreating slightly in afternoon trading. Analysts who follow commodities and precious metals predicted that eventually silver would have to make a significant move for the recent rally to continue and today it did so in a big way.

Where are prices headed from here?

While gold has now cleared a path to new highs, there is some significant resistance remaining before silver can attempt to challenge the highs put in place during the last week of April. Key short term levels include the area between $38.50 and $38.80 per ounce which represents the closing and intraday highs from May 24th, 25th, and 30th along with the location of the 50 day moving average at the time. It would not be unusual to see some form of consolidation or slight retracement after such a considerable move. If the momentum from the current move will allow this area of resistance can be overcome, the last remaining technical obstacle before a test of the April high would become likely is the $39.25 level where the initial rally off of the low stalled.

For traders looking to initiate a new long position, the area of the 50 day moving average should now act as key support and any pullback towards this level could represent a potential entry point. As always, a carefully placed protective stop somewhere in the area of logical support is highly recommended. More conservative investors may want to wait for further confirmation of what currently appears to be the development of a new uptrend. In that case, waiting for a breakout and a close above $39.25 per ounce might represent a slightly more conservative trading strategy.

Remember that you don’t have to be an active trader to participate in the uptrend in prices. Investment options such as coins or bullion can be a great way to capture growth and price appreciation in precious metals for those who are interested in a longer holding period.

Several respected financial publications have come forward in recent weeks making a strong case for the fundamentals in silver and labeling the recent correction as an excellent opportunity for investors considering building a long-term position in silver. This value theme seems to be catching on as commodity traders have reached the conclusion that the May selloff was driven primarily by a squeeze on margins that forced silver buyers to liquidate long positions they had no intention of selling.

While it is necessary to understand what is driving market sentiment, filtering out the headlines and news reports to focus on the technical picture usually proves to be a more effective trading strategy. With that being said, price action seems to be indicating that the commodities are again ready to attempt another rally. The market held up at the 200 day moving average and has been supported by a rising trend line for nearly a month (dating back to the May 11th low). The 50 day moving average has proven to be an area of considerable resistance as about six attempts to breach it were turned back during the last week in May.

It is important to note that when prices backed away from resistance, they didn’t do so with any authority and stayed within a few dollars of the resistance area. We are now coming to the point where a nice ascending triangle or pennant type formation has emerged. This time however, relative strength has turned upward and the market seems poised to once again make a run at the 50 day moving average.

A breakout to the upside here would leave a considerable amount of room to the upside before any important resistance would come into play.

Entering a long on a close above the 50 day moving average with a stop just below today’s low would provide a very favorable trade from a risk/reward standpoint.

Gold also continues to show strength as well but the silver trade looks more attractive at this point given the amount of room between current levels and the next area of important resistance. Gold on the other hand is already much closer to testing the April high.

For now, one thing is clear; the bull market in commodities is clearly intact and the overall uptrend in precious metals remains in place. As always, carefully selected entry points and well-placed protective stops will be the key to achieving profitable trades.

Traders and investors concerned about margin may want to consider using the ProShares Ultra Silver Fund (AGQ) as a trading vehicle. It provides 200% of the daily performance of silver bullion and as long as you purchase your shares with cash, you will not need to be concerned with CME raising margin requirements. As an added bonus, this is an optionable ticker symbol which can allow for income based strategies such as selling covered calls or straight option purchases to avoid tying up large amounts of trading capital.

The next major level of support for silver doesn’t come in until around the $33.90 level which is the 200 day moving average and also happens to be the closing low from March 15th where the silver market began its steep ascent that peaked back in April.

As we’ve discussed here on numerous occasions, sometimes the best position to take in the commodities market is to sit on the sidelines. Right now, the price is stuck approximately midway between a major area of support and a formidable level of resistance with quite a bit of distance between the current price and either of the two. The theme to remember for the next day or two is that boredom does not constitute a reason to enter a trade. As of right now, there are no attractive trade setups on the long or short side that offer a high probability of success or a favorable risk/reward ratio.

There will likely be several headlines in the news media today claiming that the bull market in commodities is over. Keep in mind that although we are experiencing a pullback, from a technical standpoint both gold and silver remain in an uptrend. Until either of the two breakdown below major support, no reversal of the overall trend has occurred.

Right now, the chart on gold continues to look considerably better than silver and as of this morning, gold has managed to hold on a retest of the breakout above the May 10th high. As long as gold manages to close above that area of support, the upside will remain favored.

The Euro managed to post a gain against the dollar overnight and remains above both the 50 day and 200 day moving average. A declining dollar will help to provide some support for commodity prices. As long as the dollar doesn’t gain any momentum to the upside, the chances of a major trend reversal in commodities will likely be held in check.

Again, no trade opportunities are looking spectacular in commodities right now but if you feel compelled to take a shot at something, a play on gold bouncing off the $1525 support area might give you a small window of opportunity. Set a tight stop on a close below support would be an absolute must if you decide to take the chance. Watch out for the Fibonacci retracement levels of the move from $1544.50 to $1519.65 for possible resistance. This may be something to experiment with in a practice account.

Be sure to keep some trading capital available for bigger opportunities in the coming days. Once a solid directional bias can be established, there will be an opportunity for some profitable commodity trades.

Gold prices were up just over $11 an ounce today after a strong breakout above key resistance setting the stage for an eventual retest of the April high. For those who weren’t able to catch the initial breakout early this morning, any pullback towards the $1525 area would be a buying opportunity with a stop just below the breakout level. The daily chart on gold really looks good here and the current pattern is one that we have seen associated with a high probability of additional upside. That’s not to say we won’t see a short term pullback in here, especially ahead of the holiday weekend but the near-term outlook is very positive given the price action of the last few days.

Some renewed weakness in the dollar helped gold to rally early in the trading session and may give silver a boost if it continues. The EUR/USD cross is sitting right at 142.95 which also happens to be right up against the 50 day moving average. A solid break above this level should serve as additional confirmation for commodities traders that an extension of the recent move to the upside is favored.

There are two signals traders should be looking for over the next several days before considering a long position. First, silver prices need to see a close above the 50 day moving average to avoid a reversal and a re-test of the 200 day moving average. Next, a move above the May 10th high would indicate an increasing probability that we are eventually headed back to the April highs. Keep an eye on the relative strength number as an indication of market stamina. If relative strength makes a new high on a move above resistance; that would be a positive sign that further upside potential exists.

Earlier this morning, the dollar found some renewed strength and posted a significant gain against the Euro. It has since retraced a decent portion of that gain and there is still no clear indication as to where the dollar is likely to go from here in the short term. Since this is another unknown factor, it serves as another good reason to sit back and take a wait and see approach with silver.

In the gold market, we’ve seen prices retreat a little as the May 10th high has proven to be difficult resistance to overcome. One positive there seems to be the fact that gold was able to catch a decent bid on the pullback indicating that there are still traders and investors on the sideline who are ready to jump into the market on the dips. Gold made a triple bottom this morning on a five minute chart at around the $1515 level and made a healthy push back to $1525. A little consolidation at these levels would signal healthy market action as long as the pullbacks continue to generate buyer interest.

If you are still holding a long position here, now is the time to make sure you move up your stop to protect your gains if you have not already done so. Some of you may be contemplating taking a short position at the 50 day moving average to play a pullback and while this does make some sense from a technical standpoint, it is not the kind of high-probability trade we look for.

As a silver trader, it is important to have a pre-defined set of rules to follow that dictate when to consider a trade and more importantly, when to avoid one. A sound trading strategy is to avoid going against the prevailing trend and in this case, both the long and short term trends in place are to the upside. That doesn’t mean that it is impossible to make money by trading against the trend, it just means that the odds of success are inherently lower.

As discussed yesterday, the next key level in silver will be the May 10th high provided that we do not see a reversal at or near the 50 day moving average. Since there are no clearly defined trading set-ups that offer an attractive risk-reward profile at this time, waiting on the sidelines for the market to provide some additional price action is the preferred strategy for now.

The dollar continues to slowly retreat from the May 22nd high against the Euro but until a solid directional bias is in place, traders should consider it a potential risk factor to the rally in commodities.

Gold prices briefly broke out above the May 10th highs but quickly failed and fell right back to the area where the breakout occurred. Keep an eye on this important level as a follow-through move to the upside would demonstrate that the current rally has some staying power. A little consolidation here would be healthy but any major reversal here could mean that the move is running out of steam.

Unlike gold which has now cleared the most important levels of near-term resistance, silver will have to rally through the 50 day moving average (currently around $38.23) and also the May 10th high of $39.50 before it can make any serious attempt at a re-test of the April 24th high. The $39.50 price point corresponds to a key Fibonacci retracement level where prices reversed once before so this can be considered an important area of resistance.

While a short term bottom has been formed at the 200 day moving average, the two major areas of overhead resistance will likely test the momentum of the rally. Short term traders may want to look at the area near this afternoon’s breakout point of $36.42 where the morning high was breached as an entry point for a long with a price target of the 50 day moving average. In this trading scenario, a stop could be placed about $0.10 to $0.15 below the breakout.

While not a slam dunk by any stretch of the imagination, the trade does offer a potential profit of about $1.50 an ounce with a downside risk of around $0.30. This would target a short-term momentum driven rally up to the next key level of resistance which does now appear to be favored after this morning’s gains.

The slight pullback in the dollar today is currently creating an environment which would allow this to take place. Look for any sudden shift in the dollar or renewed rally as a potential indication that the move in gold and silver may stall. Additional dollar weakness could provide the necessary impetus for a sustained commodities rally and is something that bears watching.

For silver traders looking for a longer-term trade with greater upside potential, the preferred strategy here may be to just sit back, watch the charts, and wait until some of the key resistance levels have been taken out before entering a position. You can never lose money by sitting on the sidelines and there is nothing wrong with waiting for a trading opportunity you are comfortable with. The next best thing behind a winning trade is to avoid a losing one!