Based on the January 6th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

The new year started off with a bang with precious metals out-shining the competition. Is this a harbinger of things to come? We think so and we are not alone. Forecasts for gold for 2012 include a price per ounce of $2,200 by Morgan Stanley, $2,050 by UBS, and $2,000 by Barclays.

The year 2011, for other than gold investors, has been a disappointment, more like a train wreck. Growth has been paltry, unemployment remained high, sovereign debt in the stratosphere. The U.S. political system has been dysfunctional unable to make easy decisions, never mind the hard ones. There was no housing rebound and the eurozone looked like it was a house of cards. But look on the bright side. Despite a prophecy by Harold Camping, the world did not end on May 21.

There was also some other good news. There was no double dip in 2011. Osama bin Laden was "laid to rest in a solemn ceremony concluding upon impact with the Indian Ocean at a terminal velocity of 125 miles per hour," (at least that's the official version) in the words of Dave Barry, humor columnist for The Miami Herald. Moammar Gadhafi and other dictators also suffered major setbacks (to put it mildly.)

There are some issues hanging over the economy in 2012 that will determine if the upcoming year will also be a disappointment.

In 2011, American politics was silly undermining confidence in ways that damaged economic prospects. There was the April battle over spending that nearly shut down the government and would have had a devastating effect on the ability of Congress to continue spending insanely more money than it actually has. The December standoff was over whether to continue a cut in the payroll tax that both parties agreed to in principle. But most damaging was the summer brinkmanship when many House Republicans threatened to block an increase in the debt ceiling -- which would have meant a default on U.S. debt -- unless they got their way on major spending cuts. The sides hammered out an agreement under which the government will continue to spend tons more money than it has while a super committee will devise a plan to solve this problem once and for all. This committee fell short of its goals. Perhaps in 2012 we will see "a Super Duper Committee." Even after a deal was struck, Standard & Poor's cut the U.S. government's credit rating, blaming the downgrade on the reduced "effectiveness, stability and predictability" of American policymaking.

Stay tuned. This year's election is going to be a cliffhanger. Obama has going for him the lackluster Republican lineup. He may actually win. But with a razor thin mandate and a Republican-controlled Congress, Obama in his second term will not have much room to maneuver. With the economy in such a fragile condition, it would be best, whatever the outcome of the November election, that the result be decisive and unifying. Meanwhile, a move toward a libertarian approach sill appears unlikely.

To see what is likely to happen in the precious metals market in the nearest future, let's begin the technical part with the analysis of silver (charts courtesy by http://stockcharts.com.)

In the very long term chart for silver (if you're reading this essay at www.sunshineprofits.com, you may click on the above chart to enlarge it), we see that silver has bottomed once again. If the nearest resistance level is broken, a significant rally is possible. RSI levels support the significant rally theory beginning now.

This is in tune with our previous comments on gold, published in our essay on the possible bottom in precious metals:

The fact is that "breakdowns" similar to the one we're seeing just now have been (...)followed by the final bottom of the consolidation (...), which was in turn was followed by a strong rally. In these cases, lower prices were never seen thereafter. Consequently, from both fundamental and technical perspectives, gold remains in a bull market, and what we're seeing right now may be the best buying opportunity that we'll see in the coming years.

On top of that, there is more to read from the very-long term silver charts.

In this second very long-term chart for silver, we see that the cyclical turning point worked perfectly as prices reversed sharply right at that point and then began to rise. These moves further increase the odds that we have seen a major bottom and it could very well be years before silver's price is as low as it has been recently (or we may never see silver price as low as we just did).

This is by no means a sure bet, but twice previously, when silver bottomed at cyclical turning points in 2004 and 2010, we have seen an ultimate low - lower prices never followed. The long-term charts suggest that at least a medium-term rally is underway at this time.

Looking at silver's short-term chart, the situation is a bit less clear. A cyclical turning point is close at hand and it is not yet clear whether we will see a bottom or a top. Neither appears to invalidate the points made previously since long-term implications are more important and carry more weight than those obtained from short-term charts. For example, we could see a small pause (a local top and then a local bottom) within a rally close to the end of the month.

When silver finally breaks above the declining resistance line (gray) and the 50-day moving average, much clearer signals will emerge. The outlook based on this chart appears bullish at this time but another week or two seems to be needed to tell the whole story.

Summing up , the situation in silver appears to be very bullish at this time based on the long-term indicators. Overall, the situation appears to be quite bullish since long-term indicators carry more weight than short-term signals.

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Thank you for reading. Have a great and profitable week!