Trying to market time a volatile gold and silver market is a fool’s errand
Posted on 19 December 2011 with 8 comments from readers
OK so it is all now painfully obvious what the future holds for gold and silver. Deflationary forces are taking over. There will be a credit implosion in the eurozone and China. Commodities prices will drop off a cliff in 2012. Gold and silver will be swept down with everything else.
So you sell up your bullion holdings and then wait for the crash and buy at the bottom. You then watch as bullion soars back to the sky. That was a great trade in 2008-9. But only if you got your timing right.
Market deja-vu
Very few commentators called a bottom in the gold price in April 2009 apart from, with due modesty ArabianMoney. Most people stayed out of the market until the gold price bounced back. Or they failed to accept the sell-signal for gold until the price was already close to the floor.
Those who just held their position through the crisis suffered some big losses on paper but by the spring of this year had doubled their money and more. Since then we have seen another correction in the bull market. Now the chartists assure us we are set for another plunge in the price of precious metals.
Correction done?
Or have we just seen it? Gold has been through a classic 20 per cent correction cycle, silver a typical 50 per cent retracement from a short-term spike in 2011. Perhaps the precious metals have just had their correction and it is the other financial markets that come next. You could then see some further rebound in bullion prices which now look more attractive to investors looking for relative safe havens.
That is just the micro-view. The bigger picture is the very pertinent observation that market timing a volatile commodity in an uptrend may not work nearly as well as just buying the stuff and leaving it alone. You only have to mistime one or two of the major moves in the cycle and you have losses that will leave you way behind the buy-and-hold crowd.
That goes for the so-called expert traders too. A bit of luck can so easily be confused with judgement when none is involved.
8 Comments posted by readers:
HI Peter,
I enjoy very much your short to the point comments. My concern is will there be a rebound. The rebound if I understand people’s logic is there will be bail outs/ money printing. But how sure is that? If they refuse to print knowing the cisis is coming why would they print after? Should they not print trying to avert the crisi? After all they are politicians and avoiding the crisis is in their political interest. In 2008 there were bail outs. Is that not why PM shot up?
However some inteligent economists believe that Gold does well during deflation I believe Rick Rule was one of them he recently stated this on KWN.
I will say like you it is very confusing but were else can you go. Martin Armstrong has recently came out and said your money is not even safe in American Banks. The banking system has become third world. Therefore holding physical Gold /Silver seems to be more and more the wiset move and will only add to the demand and improve the investment.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/12/19_Martin_A._Armstrong.html
Finally how has gold/siver corrected compared to 2008?
Ed Note: the gold and silver correction today is nothing like as severe as the 33% and 60% fall of 2008-9. That might still happen though with bond markets so unstable I doubt it, and we will get a QE2 and IMF bailout. See today’s article on market timing…
Thank you for your wisdom and blog Joseph
Concerning your News Letter Peter Nov 25 where you stated: Those who have relied upon low interest rates to stay afloat with big debts are therefore about to get their comeuppance.
I am Canadian and have Ontario Bonds for 11 yrs @ 4.1% what should I do with them They are up in value Should I sell?
When do you see interest rate rise?
Other economist in our circle do not see them rise in the USA for a long period of time.
I heard about Japanese bond rates going to rise but USA near term No.
Everybody is welcomed with wsie advise and comments
Thank you
Good Advice from the Ed.:
“market timing a volatile commodity in an uptrend may not work nearly as well as just buying the stuff and leaving it alone.” Well said!
@KJ:
I normally do not provide investment advice, but I’ll give you my own assessment. In my view, the western central banks have been fighting against a potential deflationary depression for quite a while now, but they’re losing this battle.
As stated in the first paragraph above, “deflationary forces are now taking over”. So what does this mean to an investor? There is a partial answer above, namely that commodities will correct further (or maybe they’ve already corrected?); but in addition, even if the next deflationary wave is brief (i.e. 6 to 12 months), we will see treasury bond rates drop as well. This is especially true for the bonds of western economies which are “less ugly” than others.
To me, this suggests that US and Germany (and possibly Canadian) treasury bonds will see their rates drop a bit further (and hence, the bond will appreciate a little more). I believe the US 10 year Treasuries could drop to 1.5% (currently at 1.85% as of this morning). But as also indicated, if the gold price drops further, it will have a rapid and violent upswing soon after. Ditto with the US Treasuries; once the US 10 year hits 1.5%, I believe other forces will propel the rate quickly up to 2.5%. And it will continue to rise thereafter.
printing is the only, and increasingly weak, weapon they have…..so they will use it.
what else are they going to do?…..ben has said as much many times…..the ‘throw money out the window of a helicopter’ was a DIRECT quote.
they print at 9400 dow approx n we get that from EU blow up.
2012 the beginning of the middle of the 40 year n running debt/credit bubble burst.
i’m only timing the market with alittle funnymoney …….my big is in phyz along time ago.
n i’m sitting in UGL as we speak…i’m only going GLL on freefalls.
sorry.
“The banking debts have been hidden, and we don’t know how much this will cost the government,” said the new Spanish premier, Rajoy, today. I seem to recall warning the readers of this site about the dangers of Spanish banks about a year ago.
The chief economist of Goldman Sachs, today predicted another round of QE in the first half of 2012. I predicted it here about 6 months ago. We shall see if I’m right again. That should give gold a little boost, but I don’t expect it to last long.
My year end DOW prediction of 13,000 looks like it will be way off. Politics is hard to predict, but I got close, before the Europeans started acting foolish. Note that they are being warned to do something SOON by the ECB.
Some people are on TV saying that a breakup of the euro will be ‘manageable’. WRONG WRONG WRONG. A breakup of the euro will be a financial catastrophe. That is why, at the last minute, the Europeans will do whatever is necessary to stop it from happening. If they are foolish enough to sit back and watch it happen, look for a massive stock market correction. Even gold and silver will get dragged down. It could cause another Great Depression.
Yes, ‘Just buy the stuff and leave it alone’ – sage advice i reckon. That said, I traded 10% of my physical gold back in the summer at 1,820 for CAD. I wanted to get it right, just once this year.
(i lost on oil, a very junior mistake)
As for comparing the pundits over on KWN, I go with Rickards over all. I think he’s got the zen of it, probably researching for his book helped. The message i got from him was to stay calm while everyone else is shrieking the sky is falling. I spend almost a quarter of my day every day studying these markets, trying to understand what is actually happening and yet, i wouldn’t dare make any predictions, mainly because i think i only see part of the big picture, and probably a small part at that. I can’t envision a deflationary financial collapse just yet. Anyone with a press is going to print, just at different stages. (spin the bazooka) The only place i feel safe is in PM’s, cash and Canadian utilities, and that’s where i’m parked, sitting tight. I’ve got some Ontario municipal bonds too. I don’t think there’s any doubt we’re in a depression right now. Eg: 50% unemployment in Spain’s under-25 demographic, that’s not a recession. This one is different, there’s a social safety net, and the governments are printing, but that will surely end in a crackup boom. My broker fears the DOW is headed to 7,500. When your 73 y.o. broker advises you to ‘go to cash’, you know its getting serious. I’m in one of the sin businesses, so i’m not too worried about income survival. Yet, like Celente, I have a plan B, but it’s a one-way ticket to a quiet beach in South America if the stuff hits the fan. I don’t expect i’ll need plan-B for about 3 years at least, but its comforting to have, in the event things get beyond control in this neck of the woods. As for the store of food, bowie knife, guns and bulk ammo scenario, good luck with that plan (Gerald). Anyone who thinks they can ride out a giant tear in the social fabric of North America has seen one too many movies IMHO.
Addendum:
Rickards is going to wax Roubini. One is an academic.
Faber – Mark Faber: “I Am Convinced The Whole Derivatives Market Will Cease To Exist And Will Go To Zero”
I stand corrected…
So we have deflationary collapse coming. When the derivatives market goes to zero… the bankers are done.
So now what do we do?
Au