We were looking for 2 things before sending out this alert:

• To confirm a break-out we were looking for both gold and silver to break-out of their triangle patterns (confirm one another) before we called it.
• We required that each metal exceed its pattern by at least 3% (to guard against false breakouts). Gold broke out of its pattern by 3% earlier this month. Silver just broke its pattern by 3% today (Friday). Here is the chart of gold.

Here is the chart of silver.

Note two things about the previous triangle patterns that silver had in the past 5 years.

• Once the metal broke out of the pattern it came back for a “test of the pattern” before surging upward again.
• It is difficult to predict exactly what these “tests” will look like.

We would have a hard time recommending that an investor wait for the “test” in order to get the trade exactly maximized. It may or may not happen.

How will you know if this pattern fails?

If the silver price comes back for a test and breaks 3% below the triangle pattern then we will have to assume the rally has failed, (although we don’t expect that to happen).

We very well may get a “mid cycle correction” at some point during this precious metals bull market but so far we are not seeing the warning signs of this yet.

We are not permitted to give “trading advice” in this forum but have a suggestion for how to give “trading advice” and “asset allocation advice” to yourself.

• Ask yourself, have you seen any noticeable difference in government monetary policy? (We have not so far, in fact Federal Reserve Chairman Bernanke sounded quite content with the status quo at his recent meeting.)



• Then ask yourself, In 2006 when gold and silver went screaming upwards (22% for gold and 45% for silver) were you happy with your precious metals allocation?



• Finally, what do you think the prospects are for the US dollar long term, and how can you hedge against its weakness?

Conclusion

The fundamentals of this market appear solid so unless the price action tells us differently the precious metals bull market has to be considered alive and well.

Gold & Silver Newsletter
http://goldsilver.com
Brent Harmes, Editor-in-chief
brent@goldsilver.com