Is silver about to take off?

Gold and silver are both looking strong of late, but silver's gains have been nowhere near as spectacular as the 28-year highs its fellow precious metal has been hitting. But that could soon change...

Both gold and silver again displayed considerable strength this past week. Gold climbed 2.8% on the week, while silver advanced 2.4%. (See gold and silver charts below).

Note that silver remains within the pennant consolidation pattern it has been forming since last year.

I have commented in recent alerts that gold and silver have diverged. While both precious metals have been moving higher this year, gold has exceeded its May 2006 high, but as we can see in the chart below, silver still remains below the $14.85 high it achieved last year.

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Silver needs to break above $14.85 to confirm that both precious metals have resumed their major uptrend. Therefore, it is reasonable to ask, will silver finally confirm?

Of course, no one can predict the future. Anything can happen, including the possibility that history will repeat. In this regard, note the similarity of the two pennants on the silver chart. Remarkably, silver is following essentially the same path in both pennants. I have marked key turning points within the pennant with the letters A, B, C and D.

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I also show in both pennants the short-term downtrend line (drawn in red). Again, history is repeating because we can see in both charts that silver broke above each red downtrend line, which brings us to the present. Silver is sitting just below overhead resistance at the top of its current pennant.

Silver broke through this resistance level in the first pennant, and then began a major uptrend. Will history continue to repeat? Is silver ready to break out of its current pennant and soar like it did in 2005 after it broke out of its first pennant?

We know what questions to ask, but we'll have to wait a few more days for the answer. We'll soon see whether silver rockets higher by continuing to follow the same path it took in the first pennant.

Meanwhile, the US Dollar Index closed the week at another record low. The Dollar Index dropped -0.9% this past week, and is building considerable downside momentum.

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The above chart shows that the dollar is falling off the edge of a cliff. This chart suggests that the possibility of a dollar collapse is both real and imminent.

Could a dollar collapse cause gold and silver to rocket higher? Again, we'll learn the answer to that question in the days ahead.

In the meantime, stay with the trend. Both precious metals are trending higher, while the dollar keeps heading lower. While short-term corrections can of course occur at any time, I see no reason why the major trends are about to reverse course. Own the precious metals and avoid the dollar - and watch whether silver hurdles above $14.85 in the days immediately ahead.

James Turk is the Founder & Chairman of GoldMoney.com. He is the co-author of The Coming Collapse of the Dollar