Precious Metals: Boom Or Bust?

May 14, 2011 Market Updates, Politics, Predictions No Comments

What is going on in the precious metals: boom or bust? The answer may not be that complex. It appears that the market is going through a normal consolidation that will strengthen the next move up. Markets do not go up in a straight line, but rather they proceed in the direction of the primary trend in a staircase pattern. If the general trend is up, the staircase will move up, if the general trend is down the staircase will be moving downward. The corrections that occur during a bull trend offer opportunities to take profits and to continue building your holdings on corrections.

There is no magic to the market, there is only discipline. Stocks are vehicles that allow you to build wealth. You sell into rhino horns and you buy ski jumps. Emotion should never enter into your decisions. You set your expected profit percentage when you buy a stock and you sell by thirds as the stock reaches your preset levels. On the way down you do the same. Buy in thirds because no one can predict where the exact bottom will be. Reading the charts can give you a good idea, but it is not an exact science. If you follow this advice, you will be well served during this precious metals bull market.

Late last week saw a market correction in gold and silver commodity prices. The “risk” purchases were out of favor as the world basked in the knowledge that Osama Bin Laden was dead. Silver fell over 25% from the high $40 range. Spot prices fell below $35.00 per ounce with the correction, but have recovered towards the end of the week. Gold fell much less on a percentage basis and is struggling to maintain the $1,500 trading range. Once again, round numbers are playing a major role in the precious metals markets.

PRECIOUS-Gold drops 1 pct on dollar surge, silver up

Sat May 14, 2011 8:32am GMT

NEW YORK (Reuters) – Gold fell on Friday, sharply reversing early gains, as a dollar surge against the euro and renewed uncertainty about euro zone debt prompted investors to sell ahead of the weekend.

Silver continued to recover from last week’s 25 percent correction, and technical charts suggested the metal could stabilize after bouncing off a key support level.

“It’s mostly position squaring over the weekend,” said Axel Merk, who manages $700 million mutual fund assets at Merk Investments. “We’ve had this dramatic run-up week after week in both gold and euro.”

“The good news is that it shakes out the trend chasers and momentum traders coming into these markets, and what you end up are stronger hands who are buying gold and euro in the long term,” he said.

Spot gold fell 0.7 percent to $1,492.50 an ounce by 3:09 p.m. EDT (1908 GMT), having earlier risen as high as $1,516.40. U.S. gold futures for June delivery settled down $13.20 at $1,493.60, after trading in a range from $1,482 to $1,516.40.

For the week, gold was flat after shedding nearly 5 percent last week during a commodity rout.

Thoughts on the Market Action From Mr. Gold Himself, Jim Sinclair

Jim Sinclair said it best, as he always does, on May 4th, 2011 when discussing the action in the silver market.

“Margins will continue to rise on the COMEX until it reaches the cash price of silver. This works for the shorts as their hammer on the silver market reduced the equity of low cost positions. The efficacy is short term and made no difference whatsoever in 1980 as the silver market made its highs. What broke silver in 1980 was a unilateral change (novation) of the silver contract which went to “sellers only.” Under contract law that is simply not permitted. They got away with a violation in 1980, but the corporate changes in structure at the COMEX that have occurred since 1980 makes the COMEX less able to pull that trick off successfully in 2011.”

“Silver is simply being silver. Silver did help gold therefore the 25% drop in value has to pressure the gold price.”

“The USDX is simply having a weak rally off a totally oversold on every internal indicator short side trade. The dollar has no future. The supply wishing to diversify is simply too big to allow any rally to have legs.”

“I have told you silver is a game. That being said, it it is a great game. Certainly as the silver price approached the 1980 high, you might have considered selling 1/3.”

“The high trade on silver was $54 in 1980. Silver’s round numbers are at $50 and $100. Both will function as such in trading….”

“What you have witnessed is not at all shocking. If you traded 1968 to 1980 you would know this is just silver being silver.”

What Does This Mean In The Long Run?

“This is just silver being silver.” No truer words have ever been spoken. Silver is volatile and it has had a great run, so it is only natural that it would have a big correction. Short term it is scary to watch, long term it is just a blip on the charts that will see silver go to over $100 per ounce. Volatility is a good thing that allows you to leverage your money, if you are disciplined. Sell into strength and buy weakness. It is hard, because it goes against your natural instincts, but as a strategy it is a proven winner.

In the long run, the fundamentals have not changed. Bin Laden’s death eliminates one terrorist, but it does not end terrorism as is witnessed by the Pakistani bombings. We live in a very insecure world with threats from around the globe. Until the United States has mature leadership, these threats will continue to flourish. It is time that America elects an American President who will restore our rightful place in the world. We can no longer afford the luxury of leftist apologists during these uncertain times. (All the “birthers” can relax, I am referring to a pro American president, not the birth certificate issue.)

America needs fiscally conservative leadership which will never come from the Marxist Party and is very unlikely to come from the Republican Party. Until we get “adult” leadership, you can expect the devaluation of the dollar to continue. Gold and silver as physical holdings will continue in their bull run until the politics of the left are replaced. Gold and silver stock investments will allow you to leverage your investment portfolio and keep you ahead of the curve and making money.

Government’s are beginning to figure out that fiat currencies are a risk that they can no longer accept. Russia and China have been purchasing for some time and now Mexico has joined the list.

The Guardian May 4, 2011

MEXICO CITY – Mexico’s central bank says it has bought about 100 tons of gold in recent months, equivalent to about 4 per cent of the bank’s international reserves.

The Bank of Mexico’s latest report says those reserves stood at about $131.3 billion at the end of April. That means it purchased gold worth about $5.2 billion.

The bank says the purchases are part of its long-standing system of investment and asset diversification.

Precious Metals: Boom or Bust?

The answer is pretty clear. We are witnessing a correction in a boom cycle. This is a healthy thing for the market and this correction should be used as an opportunity to acquire more holdings in the precious metals market. There is no need to debate this subject now, but I would suggest that you refer back to this article in say October or November of 2011 because the answer to the question, precious metals: boom or bust?, will be pretty evident by then. This month’s prices in the precious metals will be the bargain prices of 2011.

Till next time, good luck and good trading!