Silver Overnight – February 22, 2011

Silver saw a modest overnight correction, given up slightly more than $1.10 as of 5:40am Eastern Time. I have received a number of emails from those concerned this may be foreboding of a substantial correction. On the contrary, I believe this momentary weakness is one of the final opportunities the market will require to regain its composure, prior to igniting a multi-month rally in the entire metals complex.

As is the case in all markets, price studies are a matter of perspective. Long term trends always override short-term price action, and cyclical due dates always trump technical signals. For the gold and silver complex, a cyclically-defined intermediate term pullback is not due until the May timeframe, and may be shortlived at that. I anticipate this pullback to follow only after a breathtaking rally, largely in the process of being catalyzed by the emerging silver shortage. Through the employment of unique functional forms to fit each phase of a bull market, it is becoming quite obvious that silver is in the process of defining a higher-order trajectory. This means that the previous functional form governing its rally behavior, of the 2nd degree, is now becoming a higher order (3rd degree) function. Once previous resistance defined by the long-term 1st order and 2nd order trend lines is confirmed as support, it is off to the races.

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