Silver has been consolidating in a tightening coil pattern since mid March 2010 (5 months). These types of considative patterns are not unusual and generally portend a very strong move once the consolidation resolves itself.

This type of pattern is neither bullish nor bearish inherently – so the analyzing the chart doesnt give us insight into what to expect. For that, we need to turn to the fundamentals and look at what other markets are doing.

Most people seem to expect as a given that the general markets are set to collapse any moment now. There is more than a consensus on this and if you argue something different – you are viewed as an idiot – or worse. After all – everyone agrees so it must be true, right?

The general public this year has been moving from stocks to bonds (flight to safety) in record amounts no doubt in response to the cacophony of voices saying that the market is teetering on the edge.

The various stimulus measures havent done the job, the housing market has resumed its decline, unemployment is still rising (even though the govt is doing everything it can to hide this reality), etc…

If the markets do fall – it is likely that silver will fall in sympathy…or will it?

The CFTC is serious about reforming the markets and establishing position limit in all commodities – including silver. JP Morgan has so many shorts to cover it makes your head swim. That fact (and it is a fact) will provide a solid steel floor under silver (in my opinion).

I dont think the markets are going to tank – I dont think Obama will allow it. Its too easy for them to buy SPY and DIA in the odd hours of the night, and during the last 15 minutes of trading to keep the markets propped up. In the big scheme of things – it doesnt even cost that much money. The fact that the consensus is we are going down is a big signal to me to be conscious of the contrary – that we are going up. Not because fundamentally we are through the worst and there are blue skies ahead – but, because of a collapse in confidence in US Treasury debt.

If everyone is piled in to Treasuries – what happens when they decide to venture out? They must sell Treasuries – right? What happens when people start looking around and seeing others selling Treasuries? Thats right – they follow the lead and sell too. Of course Bernanke will buy those Treasuries – but, what happens when that fact gets around (and news travels fast) that Bernanke is monetizing the debt by buying all Treasuries – no matter the quantity – to keep yields down? That prompts more selling – which can very quickly turn into panic selling. People sell their Treasuries and then hold dollars. And what do they do with those dollars? They buy anything tangible they can get their hands on. Commodities (including silver) first - but, also stocks.

There is a ridiculous amount of money currently in Treasuries (and its still growing). Are you prepared for what happens when that flow reverses and heads out of Treasuries?

Those are the fundamentals and they argue against a collapsing stock market (and a collapse in the price of silver). Hence, the consolidation pattern that has been forming in silver since mid March will resolve itself to the upside with a target of $23 in my opinion.