Silver hesitation.

Silver is a precious metal. It is both, of monetary value and an industrial commodity. So, it is not surprising that gold and silver behaved similarly (during the Sep-Dec run-up), yet showed some differences.

Let's see what the graph of silver prices tells us. Please refer to the previous post for the graphic on gold.

Here are the comparisons between gold and silver:
1. The last rally in gold began in the middle of July, whereas the silver rally began at the end of August; 2. the gold rally began to lose steam in October. The up legs of rallies were still the same slope, but the down legs(mini corrections) made the gold price change look toppy, i. e. topping out; 3. silver prices also underwent the mini corrections, but during up legs silver price changes accelerated; 4. silver prices, therefore, did not top out, they kept going up at the same rate; 5. silver and gold prices seems to be in sinc as of Jan 1, 2011 and silver correction may be a day or two ahead of the gold correction.

Both, gold and silver have reached a low on the graph that shows their oversold condition (top graph), yet I hesitate in flatly saying that the correction hit its bottom, even though silver has broken out of its downward trading channel. The MACD for gold and silver has also began to turn upward if slightly.

Why do I hesitate? Corrections in a bull market usually wipe out 1/3 or 2/3 of the last up leg (the Fibonacci numbers). In the case of gold, 1 Fibonacci would be at 1,350 and 2 Fibonaccis at 1,250. Gold has traded at 1,320, somewhat below the one Fibonacci. Also, silver has reached its 50 DMA and backed off, while gold has yet to do so. If silver closes above its 50 DMA a couple of times, it would then complete the reverse head and shoulder and enter its next up leg.

Here is a Summary of what we know: the silver and gold markets synchronized, with silver may even be ahead of gold; silver is our canary in the mine to tell us if the correction is over. If the current picture holds, the correction will be over before the first of March.