(Kitco News) - Silver prices have seen a major bull rally since spiking higher in late August and long-term market watchers are bullish on the grey metal, but short-term prices could be getting ready for a correction.

As gold prices rallied so has silver as the “poor man’s gold” enjoys some attention from the speculative class. For those who choose not to buy gold as an alternative currency, silver has offered an inexpensive way to invest on that thesis. Further, silver has benefitted from its dual role as an industrial metal, rallying alongside copper and other base metals as ideas of an eventual global manufacturing recovery pick up.

Silver has also outperformed gold. Andrew Chaveriat, analyst at BNP Paribas said in a Thursday research note that spot silver has rallied 150% off its October 2008 low, while gold has gained a 90% since then. The December silver contract on the Comex division of the New York Mercantile Exchange set a low this summer of $17.335 an ounce in early June, but this particular rally started in late August. SEB Commodity Research analyst Filip Petersson said in a research note Thursday that the firm expects “silver to keep trading in parallel or stronger than gold but with higher volatility as recovering industrial demand and even stronger investor demand gives the metal an extra boost.”

A spike higher on Aug. 24, where silver set a low of $17.785 but closed at $18.428 was the lift-off for a bull run that has hardly looked back. December silver settled at $21.20, a rise of 15% since Aug. 24. It is now knocking on the door of the March 2008 high of $21.35. A move through that level would have trade to its highest levels in 30 years.

Bullish technical chart have helped push up silver and as one veteran trader said, silver’s charts “look very pretty, very textbook.” These strong bullish signals have caused not only speculative traders but those who follow technical chart patterns to buy silver.

There are some signs, though, that silver could be starting to form a near-term top, which could cause prices to pull back. The fact that silver hasn’t had a serious correction in this rally is one reason, analysts note. BNP Paribas’ Chaveriat said Thursday that silver is “nearing and stalling below long-term $21.35 resistance.” He said it’s possible the bull market may be “pausing” before taking out that area. If the market can do that, the next resistance area is $23.54.

SEB Commodity Research’s Petersson said their “tactical view on silver is neutral to bullish due to some potential profit taking risk while the strategic view remains bullish.”

Glen Ring, editor of View on Futures, said Gann resistance for December silver is seen around $22.08. “The current run appears incomplete, but the current analytical environment for silver (and gold) is highly unreliable,” he said.

Gann Theory of technical analysis tries to predict price movements through the relationship of geometric angles in charts that depict time and price.

Ring added, though, on a larger degree, the rally in silver “appears to be a blowoff run.” He said that can last at least into October and perhaps for as much as another two full months with a top in November or December.

David Morgan, independent precious-metals analyst with Silver-Investor.com, said while he thinks that silver will be higher at the end of the year, right now it could correct. He said he sold silver “a little before” $21 because he’s expecting a break as current rally has run out of steam.

Morgan said for silver to continue to rally, there has to be fresh news to power it. “It has to be something the financial markets don’t know about yet. It has to be pretty scary and no one wants to see that because we all want these financial problems solved,” he said.

If prices do pull back, silver could retrace to the $19.50 area, where Morgan said would be a buying opportunity. He doesn’t see prices falling much lower than that unless there is some sort of occurrence similar to 2008’s market break.

Ring is more bearish. He said the current run for silver is coming close to the end – unless the dollar collapses, which he absolutely doesn’t think will happen. “This run (for silver) is not likely ‘just starting.’ Instead, again on a monthly/major degree, it is probably racing toward a climaxing end…. Ideally, with this style of run, the next serious ‘correction’ will likely be much bigger -- as in, a nearly full retracement of the gains seen since 2008,” he said.

However, this isn’t the time for a bear to stick out his furry neck. “I absolutely would not stand in front of this until I see an actual climaxing event,” Ring said.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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