With gold's rally over the last week, its perfomance in context now looks like this: overbought in March, 3-month correction in an ongoing bull market, next move higher (current phase).

Given the Fed's policy course, I don't think it's too simplistic to view this as the current set-up.

So how far will the rally go? Watch silver. Thankfully (for the sake of my fingertips), I don't need to type the full explanation, I can provide the background by linking to another article about the same theme I wrote last September, when gold was breaking to new highs near $750 (on its way to $1050, it turned out): The Best Thing About Gold is Silver.

Suffice it to say, silver is a very useful marker of tops in the gold market because it so reliably moves last--that is, at the end of a precious metals surge.

(chart courtesy of stockcharts.com)

In the one-year chart above, you can see silver was not at all overbought at the time I wrote that article in September but it gave a beautiful tell of the short-term peak in March by getting wildly overbought (in particular, check out those readings on the MACD and RSI at the bottom of the graph). Today? It looks like a metal poised for a move higher to these eyes.  (AMEX: SLV) might be an interesting trade at the moment.

Podcast

Quick note: be sure to check out my podcast this week because I interview the highly-popular Roger Nusbaum, who gives his take on where stocks are going next.