Silver market players need to regain confidence to make a more sustained attack on price highs

Silver posted a new high for 2012 last week and reached its highest level since October 2010. The white metal prices rallied nearly 4% on Tuesday to hit the highest level since mid-September, after prices broke through a key resistance level close to USD35.73 a troy ounce.

Silver futures gave back those gains and more on Wednesday, plunging almost 7%, weighed down by the Bernanke speech. Despite the sharp drop, futures are still up almost 25% since the start of 2012.

The white metal attempted to break clear of the trend of lower highs from April 2011, but investors were unable to initiate the next phase in the silver bull trend.

Buyers fled on Wednesday and the market crashed lower, registering its largest one day decline this year. This weakness on the back of the decreasing prospect of a near term QE3 program and an associated fall in gold prices saw the market maintain lower levels into the close of the week.

Volume traded is also much smaller than had been seen before the sell off, with speculators now more nervous as the silver market looks set for a period of consolidation between 33.00 and 36.00, before investors have the confidence to make a more sustained attack on the price highs once again.