The 4 hour chart for gold and silver are looking extremely bullish at present. We should get a nice rise from both. As usual, silver is hyper, skittish and prone to wild exaggeration – this time to the downside. Gold, on the other hand has been steady, reliable and strong as a rock.

You will notice on the charts that both metals have a well defined upwardly trending channel. The technical indicators I use are all in alignment that a rally is the most likely outcome. When I consider that against the backdrop of the weekly chart (especially last weeks breakout) my bullish view on the metals is reinforced.

There is an epic battle taking place between the master of the short side (JPM) and the momentum funds, wealthy Europeans, Chinese dip buyers and a myriad of others that are looking to store value in a vessel that promises stability and protection against the ravages of inflation. The shorts are in a quandary. They cant stuff price down (they have been trying), but, if they are unsuccessful in their attempts at driving it down, they will have no choice but to begin closing their existing shorts (which are immense). The process of closing will require that they buy (something they hate to do because it puts them in alignment with the very forces they are at war with). This buying pressure, in conjunction with the momentum funds is what will drive gold to new all time highs when measured in nominal dollars. We are already there in the Euro, Yen and various other currencies. We will soon be there in the US dollar.

Silver will rebound very, very sharply from its losses earlier this week. As long as gold remains solid and steady, silver will eventually realize that the sky isnt falling – that the selloff was ridiculous and it will make up all the gains it lost in a really short period of time.

Volatility is assured in silver. If you arent comfortable with it, and arent adept at trading it, you either need guidance from another or should not participate in trading in this particular market because it will rip your throat out and leave you a bleeding mess on the sidewalk. Its not that silver is malicious or anything, that is just the nature of this particular animal.

Whatever you do, I would strongly, strongly urge you to NEVER use margin in anything gold or silver related – but, especially silver. As an example, there are some that will look at silvers chart currently, and think to themselves that it is a perfect setup to go long and bet the farm. That would be extremely foolish – even though I would agree with you that silver is looking very bullish.

I am holding strong in both gold and silver (and in selected mining shares) and so should you. As we move forward, this type of volatility is going to become more and more common. Get used to it, rest assure that drops like we have experienced are simply momentary lapses of reason (or buying opportunities) and get out and enjoy life. You’re motivation for being in gold/silver is probably as a wealth preservation strategy (at least partly) and it will do its job.

My advise? Relax. Enjoy the ride.