The Near-Term Outlook for Gold and Silver
May 18, 2010
– Comments (23) |
RELATED TICKERS: AZK
, GDXJ
, SIL
When investor confidence in the state of sovereign debt throughout old guard economies remains this tenuous and volatile, and for as long as the JP Morgan's of the world are able to keep their ponzified hold on the bullion market limping along on whistleblown crutches, forecasting the near-term movements in gold and silver will remain extremely difficult to do with any degree of certainty. Sometimes, the technical picture is so clear as to overcome these challenges and permit a fairly reliable call in one direction or the other, but even then the success of those forecasts relies upon the absence of trajectory-altering events that are truly impossible to telegraph. In short, forecasting near-term movements remains a crap shoot, and not one that I consider worthy of betting any significant amount of real capital on. For that reason, I continue to remain long and strong with more than 80% of my precious metals allocation at any given time, and engage in opportunistic profit-taking and (hopefully) subsequent repurchasing at slightly reduced costs. Any and all investors who do not feel as though they have their finger on the pulse of the precious metals market are encouraged to solely partake in the buy-and-hold strategy, but since not all investors are yet fully invested to their desired allocations, I continue to provide my outlook at key junctures alongside qualifying statements like these regarding the inherent uncertainty therein. My aim in doing this continues to be trying to help Fools seeking additional exposure to find their best entry points.
After selling 10% of my pm exposure above $1,220 in December 2009, I began buying positions back just over $1,100 and accelerated that effort near the $1,070 level ... which ended up being extremely close to the last near-term bottom. This time around, I was far less concerned about the prospects for any meaningful correction than I had been in December, but the RSI was a little too inflated for its own good so early in the breakout. Ever the cautious Fool, I sold small portions of a few positions into strength above $1,240. So, where to begin nibbling once more?
Yesterday and today's weakness in USD gold is a minor setback, meaning that technically some work must be done in order to rescusitate the recent break-out. I agree with JSMineset's "Trader Dan" Norcini that $1,215 is key first support that could lead to an uninterrupted move higher if sustained. The next few days will be key. If $1,215 fails to hold, then this Fool will begin slowly re-entering positions near the $1,190 mark, and then turn more aggressive with that buying if we were to revert back to the $1,160 area. I think $1,150 will not be broken in this very minor down-move, but as always I concede the possibility for worst-case scenario type dips at any given point in time.
At present, the absolute worst case scenario for gold prices remains the $1,000 mark, which was never properly re-tested following our last break-out above the level last Fall. However, and this is important, I think the likelihood that prices could dip that low has been reduced down to about a 2% chance ... it is truly the basement floor now of a worst case scenario for gold prices. I would give $1,050 about a 5% chance of coming into play, and $1,100 about a 15% chance (still highly, highly unlikely!)
At any point throughout the waiting process, I am prepared to buy back in at less than an ideal spread should the charts (or the headlines) turn notably more positive in a hurry. The most likely outcome of the game I am playing with a small sliver of my capital is that at some point I'll be left behind with a cash position that I would have preferred to have allocated to pms. I am ready to live with that outcome for the very small proportion of my allocation that I perform these games with. I advise any and all gold and silver investors to likewise limit their moving in and out of positions to precisely that portion of one's desired pm allocation that one can easily accept missing the rocket when one day it takes off unexpectedly. In a strong multi-year bull market trend like this one, and especially with a manipulated market still yet to unravel into a violent repricing event, we must accept that as a likely outcome. In the meantime, I find the guessing game quite fun.
I hope these musings in near-term price moves are either entertaining, informative, or both ... and I hope that Foos will heed my caution by significantly limiting the proportion of one's pm allocation subject to such whimsical attempts to telegraph gold's near-term price movements.
My own personal confidence in my long-term targets of $2,000 gold and $50 silver has, meanwhile, grown from about 110% to 150%. :) With one more major, desperate spending spree by an old guard economy, I may be prepared to officially raise those targets.
Fool on!
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