Predictable gold and silver correction a half-done buying opportunity
Posted on 26 January 2011 with 3 comments from readers
Gold has corrected in price by more than 20 per cent no less than 46 times since the present bull market started back in 2001, according to analysts at MidasLetter. Silver has always been even more volatile.
That is why ArabianMoney warned about a correction earlier this month (click here) while still expecting silver to deliver the best absolute price performance for any major asset class by the end of the year (click here).
Buy the dips
The smart investor will therefore use price weakness like the current correction to stock up on precious metals. Indeed, if observers want any confirmation that gold is still in a bull market then they need only consider this correction itself.
This is just more of the same up-and-down upward progress we have seen for a decade, with no sign of a parabolic blow-off or obvious spike – except for the short-term one in silver that is correcting.
Corrections are of course always shocking if you have just bought and have not had the experience of recent years in the precious metals market. The tendency is to panic sell, and that amplifies the downtrend.
Talk about investors selling out of precious metals and rotating into stocks is largely rubbish. If ever there was an over-extended trend it is the current rally in global stock markets, and emerging markets are leading the correction phase that has now started.
The real retail boom in precious metal ownership has barely started. From today visitors to the world’s tallest building in Dubai, The Burj Khalifa can buy gold from vending machines. But there are still only going to be six of them in the whole country.
Still falling
Gold and silver prices probably have some way to fall just yet. The normal pull-back from a gold high is $200 or 15 per cent, that would be down to $1,243, and it could go a little lower than that if the bears get louder, say to $1,150. Silver looks headed below $22 and perhaps as low as $20.
So if you want to get the maximum price gain for silver available this year then that will be the moment to pounce, and then you need to watch carefully for a price peak, although if past trends are a guide the second half of the year will just head higher and higher until the end of the year.
ArabianMoney newsletter readers have the benefit of actual, actionable investment ideas for precious metals while we can only offer general trends on this free website. How to ride this price trend is well worth considering in depth (click here to sign-up).
3 Comments posted by readers:
Excellent advice, Peter!
As I mentioned in your other commentary on this website, a little voice inside tells me that the current correction in precious metals won’t be as deep as the Marc Faber estimate. Gold is down almost 7% from its high, while silver is down approx. 12.7%.
If 90% to 95% of the “Tech Longs” have been driven out of the COMEX market (i.e. as the traders have said), I believe further massive shorting by JPM (as we’re seeing again today on the COMEX) will result in very little additional liquidation, thereby netting JPM minimal additional “success.”
So buying physical gold and silver on the dips is very sound advice.
I always read your articles with high interest, although i don’t share each time the points of view, which are developped.
For instance, i think that the gold correction is almost over: it was a TIME correction as much a price correction, and in the meanwhile, all the platinoids (palladium and platina) continued to climb. So don’t expect a too big bargain, i think it won’t come.
To give a number, it is to notice that it’s the MA 150 daily, and not the MA200daily, which has the support role for already more than one year; so i give 1310 $ as a target to buy in dollars.
For my part, i bought it yesterday with swissfrancs.
Yves Bauswein
Ed Note: Given events in Egypt you are most probably right.
@bauswein:
As Peter stated, given the political turmoil in Egypt, precious metals are once again climbing back up, especially considering the likelihood that the “Tunisia” experience is about to go viral in Syria and Yemen as well.
But even if Egypt didn’t flare up this past week, and even if the Middle East was relatively calm at this point in time, it’s likely that the gold & silver price suppression scheme (led by JPM) would have run out of steam by next week (4th of Feb) or the week thereafter.