Monday Evening  9 January 2012

 The first and foremost consideration when viewing any chart is to determine the trend of the time frame
under consideration, and then be aware of the next higher time frame, as well.  Starting with the strength
in precious metals, gold's trend remains up.  We drew a trendline off the 2008 lows to not only show that
it is still holding, but also you can see it has been tested several times, along the way.  When, or if, the
trendline is broken, it will be more significant and likely lead the way to a larger correction.

 September was an Outside Key Reversal, a higher high, lower low, and a lower close.  October and
November attempted to recover, but a sell-off re-emerged in December, second to last bar on the chart.
It is interesting to contrast the two.  December's bar is much smaller and the close is lower end when
compared to the location of the September close.

 By doing a factual analysis, we can come to some logical conclusions.  The smaller range tells us that
buyers were present, preventing price from going lower than it did.  The location of the close tells us that
sellers were in control.  As of the end of December, one would expect to see downside follow-through,
but so far, that has not happened.

 Price did stop at the support trend line, but the key observation is just how little the December low went
under the September low...just barely.  That begs the question, "Where were the sellers?!"   This is
continued in the weekly chart, next.

 The highly respected Jim Rogers has said gold could correct to 1200, where he would be a buyer.  He
did not say it was a certainty, only that it is a possibility.  Mr Rogers also admits to being a lousy market
timer.  Before gold can get to 1200, if it does, it must first break the recent December low.  We provide
a cogent case for it holding, for now.

  That fact of how price went lower, barely, reveals important information.  There were no resting stops
to be triggered, or very few, and most importantly, the lower price did not trigger new selling.  There was
none!  Here was an opportunity for sellers to rout buyers and drive price lower, but it never happened.  
We mentioned above, buyers were present to prevent the range from extending lower, and sellers were
AWOL.  That lack of downside proves that observation.

 This is a bit more subtle, but it adds to the significance of the potential hold in gold, at least for now.
To the left of the September low, there was a small, sideways correction in May and June.  The fact that
that "correction" was sideways and not lower tells us the market was strong, at that time.  The low of
that congestion correction is above the last swing high from November 2010 through January 2011, 
leaving spacing, confirming the strength of the then ongoing trend.  It is no accident that the decline in
September, and then again in December, stopped at this area.

 Will it continue to hold?  No one knows.  We can only deal with present tense information, and right now,
the market says that support is holding.  This can change tomorrow, or next week, or later.  As long as
we can read developing market activity, clues will be provided to confirm or negate the facts as they are
known as of today.

 We have added a down channel off the highs of September and November, and then drew a lower line
parallel to it, starting at the September low.  The purpose of a channel is to see how price behaves in
between the supply, [top channel line], and the demand [bottom channel line].  What we see here is
price holding about half-way in the channel and not working lower, which is often the case in a down
trending market.  We now need to see if price can continue to move back to the upper line, and then
observe HOW price responds to it...break it to go higher, or stay contained and move lower?

  The daily provides a clearer picture of the failed probe.  Note how that low bar is smaller than the one
before it, and how the close was mid-range the bar.  The close tells us who won the battle between
buyers and sellers.  It is a neutral close, but balance to buyers for stopping sellers cold at a point where
sellers should have dominated.  Since the low, gold has made an impressive rally from a weak position.
After three strong bars up, there has been a kind of sideways to higher "correction," telling us sellers
are absent.

 What will be important to observe, going forward, is how gold handles resistance just under 1650.
There was a sharp jump in volume when gold sold off on that wide range bar down.  Whenever there
is an abnormally large increase in volume, it is an indication of a substantial battle between buyers
and sellers, a transfer of risk.  Smart money sells highs and buys lows.  Would you surmise that smart
money was selling that day?

 Logically, we can infer the transfer of all that volume at a low area went into strong hands, and that is
why price did not go lower last month, and that is why there were no stops or new sellers under the
September low.  If we are leaning in the right direction in reaching these conclusions, it means gold
may very well hold these lows and continue to work higher.

 What is also of consequence how the December low, under discussion, occurred on the quarterly, monthly,
weekly and daily charts, creating a synergy amongst four different time frames acting in unison.  This kind
of synergy does not happen regularly, so when it does, it deserves close attention.  Adding that high
volume bar, just prior to the low, as being a transfer of risk from weak to strong hands, and we do not
know of other analysts drawing attention to that day and its significance, December may well have been
a perfect storm for gold.

 If there is merit in the presentment of the surrounding facts in the gold chart, we should begin to see
more confirmation in price and volume activity, such as we are seeing right now, with a sideways to
higher price correction, instead of one that retraces a part of a preceding rally, as we will see in silver.

 Continue to be a buyer of the physical that can be held personally.  If you learn anything from the MF
Global theft, it is, trust no one.  Ask the numerous MF Global customers that have lost SEGREGATED
account contents, if proof be needed, beyond common sense from watching the other world debacles
unfolding every day.

 Silver will move more quickly because of the groundwork laid in the gold analysis.  Despite silver being
weaker that gold, and having taken such a beating, you can see from the monthly chart that spacing
still exists.  Spacing, in a bull market, exists when the last swing low, December 2011, stays above the
last swing high, March 2008, creating a space between the swing high and swing low.  This tells us that
buyers are not waiting to see the last swing high tested, but are buying the market at current levels.
Spacing is an indicator of market strength.

 We will call the monthly chart weakened, a trading range instead of an up trend.

 As we drill down into more detail, on the weekly chart, we see a similar scenario to gold.  Silver has
successfully  twice retested the support from the last swing low from January 2011.  Compare the range
of the two sell-off bars in September, when price broke from 40 to the 26+ area, with the ranges of the
most recent decline to retest the 26+ area.  At both the September and December lows, the close on
each bar was above mid-range, telling us that buyers were overcoming sellers and supporting that area.

 In contrast to gold, silver is just below the mid-range of the down channel, where gold was above, but
silver has not dropped to the lower channel line, as is normal in a declining market.

 The more times a line is tested, it is weakened.  Silver has been pushing up against the supply line
off the September high.  Instead of a clear downtrend, silver has morphed into a trading range.  We
see the same high volume bar in mid-December, a transfer of risk from weak to strong hands, and
at the December low, the probe that went under the September low is almost non-existent, telling
us, as it did on gold, there were NO sellers under that price level...that translates into support.

 The number 24 on the chart is the number of days it took to rally from the September low to the
October swing high.  It then took 42 trading days to retrace the same ground.  In other words, the
decline lower was labored, not what you would expect in a down market.  There was no ease of
downward movement, as you would expect in a down market, and as we saw in September, from
the high.

 All we are doing is looking at the market, extracting the factual information from the price/volume
behavior, putting seemingly unrelated pieces of information together, like a puzzle.  The individual
pieces may not reveal the whole picture, but once assembled, there is greater clarity

 Buy physical silver that you can hold on your own.  Do not count on taking delivery from paper-held
transactions.  Look no further than MF Global to know why.  And from the way the MF Global disaster
has been handled, do not look to the CME or CFTC for any help when more of the same develops, as
it will.

 One more little observation about silver.  We mentioned how the "correction" response from the 3
day rally has been a sideways to higher "correction, really a consolidation, in gold.  See the last of the
three day rally in silver, on the daily chart, 5th bar from the end?  Look how the current correction in
silver has taken four days to not even be able to retrace the gains just from that last bar, and there
were two strong rally days behind that one, a rally from weakness, or should we say, apparent
weakness.  Considering the high volume transfer of risk transaction from mid-December, the market
was already in strong hands.

 As in gold, what we need to see, moving forward, is more confirmation supporting the interpretation
of developing market activity, as we see it.  Watch the last low in gold and silver.  They may be more
important than most people realize, at this point.  It takes time for markets to turn.  Let is see if this
turns out to be the proverbial first swallows returning to Capistrano.

 Always remember, we could be wrong, and we can yet see lower prices.  We will know that by the
way in which downside activity develops, and that would be in the form of wider ranges down on
increased volume, taking out support with impunity.  Until we see that, we are sticking with the context
as presented.