Gold has broken out to new highs over the past few weeks on rumors of the Federal Reserve coming to market with QE2 and continued troubles in Europe and Japan.

The current price action reminds me of the December time frame when Gold ran up only to pull back by 10%. Todays selloff is confirming my thoughts that we may be at a short-term top in Gold and investors should tighten stops and get ready to deploy capital. Important support is at the 1250-1265 level.

Silver has moved higher along with Gold as increased demand from investors looking to get access to Gold’s cheaper cousin.

For the past year, Silver has been trapped in a trading range but this breakout is significant as it implies higher prices down the road once the current runup has been digested.

Silver is likely to pull back from here and underperform Gold over short-term time horizon. Investors would be best served to tighten up stops and look for the bottom of the new trading range before allocating capital at this time.

Both charts are seriously overbought so investors should take pause before entering into any long position at this time.

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