LONDON--(Marketwire - December 20, 2012) - City Index UK -- So what happens to silver as it falls victim to metals' selloff? The recent damage in metals -- particularly gold -- is a result of the unwinding of this summer's buying gold against euro as a flight to safety from Greek election woes. The unwinding of that long gold/short EUR began to unravel these past few weeks after the dissipation of Eurozone tail risk (Greece debt buybacks, Spain bank bailout and preliminary Banking Union).

Silver is up 14% year-to-date, compared to gold's 7%. It is the fourth best performing commodity after wheat, soybeans and platinum at 24%, 22% and 14% respectively. Speculative activity among futures' traders has also been kinder for silver, with the number of net longs reaching a 22-month high of 41,275 contracts earlier this month. In contrast, gold net longs fell to 166,000 contracts, the lowest in three weeks.

See the chart here: Silver's Latest Selloff

Unlike gold, silver has persistently respected its four-year trendline, currently finding support at 29.20. Nevertheless, weeklies are likely to extend losses below 31.00 and onto the 30.70 low reached in November. Due to a most constructive technical foundation on the monthly oscillators, we expect stabilisation to emerge near the 29.50 trendline. At which point, gradual interest is seen building to guide the metal back up to 31.00, followed by 37.00 longer-term trends both bullish, the 1.0600 level can be considered a key level to watch.

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