End of silver rally?

Silver had a big vertical rally during last few months. The famous SLV etf had a 63% increase over the past 3months. Silver failed however to break the 50$/ounce resistance level and move higher. Today it experienced a 4% drop.

Will it consolidated around these levels for a few days and edge higher above the 50$ resistance level or will it crash back to the 40$ threshhold?

The silver price increase was indeed abrupt with lot of enthusiasm driving a rally. Over enthusiasm though can quickly turn sour and into panic for the faint of heart. More and more people seem to believe silver is due to crash and general perception might shape a short term price trend, which in our case points lower.

Jim Rogers, a known silver bull is cautious, being fearful of such sudden spikes in price that can signal a heavy fall. Also, ahead of Ben Bernanke`s press conference, things are particularly worrisome for silver. If Bernanke signals a hike in FED`s interest rates, small and insignificant as it may be, markets could react creating a faster and bigger sell-off in silver, dragging prices further down and faster, creating a downward momentum that could trigger panic selling.

Of course, there`s also a likely option, Bernanke will go ahead with printing extending quantitative easing in some way or announcing a QE3, which will give silver another reason to rally further into unknown all time highs.

However, worth considering beyond the above that silver industrial demand may drop significantly at higher prices which in turn could trigger a sell-off. Certain silver alloys and silver based compounds could be replaced with cheaper alternatives. There are already signs of that happening in certain industrial sectors.

I myself see silver going higher mid-long term, but I see a potential threat arising and lurking in the shadows at these levels. A case of "too fast, too soon" is already shaping up in the mind of Mr. Market.