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XMFSinchiruna (27.02)

The Top 10 Things You Might Like to Know About Gold and Silver Today

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December 04, 2009 – Comments (18)

1. This correction did not emerge from out of left field, and nor did it catch seasoned gold investors by surprise. As I was reminded today, Jim Sinclair suggested back in May that gold would pause at $1,224 after surging outside of that 18-month corrective phase. I drafted this article yesterday, December 3, when gold was trading around $1,210:

Here's a recent example. I have grown slightly more cautious about a possible correction, because the price has blasted through $1,150 and now even $1,200 with scarcely a hiccup. Although central bank purchases and other fundamental developments remain staunchly bullish for gold's long-term outlook, the dollar still stands within apparent striking range of the technically significant pivot point of 76 on the U.S. Dollar Index (USDX). Besides, Fools like me recall all too well the agony of an 18-month gut check that began in March 2008, and another before it starting in 2006. We have been conditioned by these to anticipate corrections just as the market's excitement builds.

2. Remember last week when I said that your last chance to buy cheap gold and silver would be forthcoming? Well standby, Fools... that moment is fast approaching. The low of this minor corrective pause could land anywhere, and depends in large part upon where the central banks place their bids on the way down. I will be redploying cash to press my gold and silver positions gradually on the way down from here ... accelerating the process if we dip below $1,100, and accelerating more intensely if we reach below $1,050.

3. We are just beginning to witness some of the volatility in the gold and silver prices that a USD carry trade implies. 

4. At a ratio of almost 63:1, silver remains an incredible bargain at these prices. When silver reaches $50, few will care whether they bought more at $18.50 or $17. Anything below $20 is a gift under the circumstances.

5. 76 on the USDX remains the critical line of support/weakness for the USDX. Any convincing move above 76 may gather near-term upside momentum for the USD. Any severe break back into 74 or lower places the key support level of 72 at risk of failing (at which point it is "look out beloooowwww!").

6. Yamana is still a buy, regardless of the metal's trajectory. Keep an eye on Taseko as well for any pause in its huge breakout.

7. Anyone listening to uninformed claims suggesting that gold is some kind of popping bubble needs to watch where they look for insights into the precious metals market. There is no bubble. Bull markets pause and correct ... corrections and bubbles ARE NOT THE SAME THING!!!

8. Despite the construction of the history's most elaborat financial ruse -- the global experiment with exclusively fiat sovereign currencies -- gold remains the only pure and enduring form of money. If you don't understand this fact, as conceded by former chairman Greenspan himself, then this is likely your principle obstacle to gaining a clear perspective on this entire bull market. If you don't think gold is money, but think you know everything you need to know about gold, think again. :) If you refuse to take my word for it, that's great, because your dissenting comments below are worth $0.10 each towards a very worthy cause! :)

9. Someday, the thin supply of actual physical bullion that serves as a basis for leveraged volume in paper contracts on the COMEX and elsewhere will catch up with the exchanges, and thus with the bullion banks that endeavor to shape price trajectories with their constant cycling between net long and net short positions. It's like fractional reserve banking, only without the FDIC behind it. This is why hedge funds are purchasing actual bullion in place of ETF proxy shares. The entire worldwide physical silver above-ground supply is less than $10 billion in scale.

10. Although often cited as being emblematic of a market in bubble territory, the popularity of Cash4Gold and any other programs designed to divorce consumers from their physical gold is quite the opposite. Think about it. The very fact that suckers are willing to pony up their gold for fiat pennies on the dollar indicates a deep-seated ignorance about the enduring value, the critical of gold and the dynamics of the bull market underfoot. As long as the average Joe continues to eschew gold ownership in such a dramatic fashion -- delighted to receive fiat in return at a usurous conversion rate -- then we have a market that has NOT gone mainstream enough to warrant speculation about reversal in the growth trend for investment demand. If Cash4Gold were a means for consumers to obtain gold, and enjoyed the same kind of popularity, then the present misinterpretations might in fact be on to something. As Jim Rogers once said to me, by the time everyone gets around to seeking safety in gold, I hope to be on to the next bull market. We are nowhere near there yet.

18 Comments – Post Your Own

#1) On December 04, 2009 at 7:49 PM, XMFSinchiruna (27.02) wrote:

From Trader Dan Norcini:

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#2) On December 04, 2009 at 8:28 PM, Option1307 (30.00) wrote:

Thank for the thoughts Sinchy, excellent blog!

See I'm not a goldbug hater! jk. Good work on your other blogs as well, truely a worthy effort and cause.

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#3) On December 04, 2009 at 8:38 PM, XMFSinchiruna (27.02) wrote:

Option1307

No problem ... let mwe know when you've made your donation on the TMA website, so I can mark you as paid. :)

And thanks so much for pledging and taking part in the effort.

We've raised $545 so far!!

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#4) On December 04, 2009 at 8:45 PM, Option1307 (30.00) wrote:

I already made the donation. Was glad to see such a showing this quickly...

It probably got lost in the mix...

#349) On December 04, 2009 at 8:15 PM, Option1307 (31.00) wrote:

Just got back... I must say good work Fools. We should all feel good about ourselves for quickly jumping on such a worthy cause. And besides its friday, and its the holiday season. Woo!

 

$20 donation made...

Thanks for keeping track of the total Sinch et. al.

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#5) On December 04, 2009 at 9:02 PM, XMFSinchiruna (27.02) wrote:

Thanks Option!!

We're up to $820!!!  This is really exciting.

Thanks again for getting the excitement rolling early on!

Chris

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#6) On December 04, 2009 at 9:41 PM, 100ozRound (29.37) wrote:

Whoa - Sinch puts up a TA chart???

I'm all ears....

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#7) On December 04, 2009 at 9:52 PM, XMFSinchiruna (27.02) wrote:

100ozRound

I have always incorporated TA into my fundamental analysis. 

My discussion in reposnse to this post explains my comprehensive position on the ideal combination of FA and TA to guide precious metals investment in the current environment.

I schooled GV in that post, but he wasn't ready to learn.

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#8) On December 04, 2009 at 10:32 PM, XMFConnor (97.82) wrote:

Nice post- and I respect the fact you have conviction in the midst of a correction. However, what is your price target for gold?

 The "idea" that you promote for gold- that everyone will eventually use it as safety for their wealth is a dangerous one. It is a nice idea... and suggests that you can afford to get in at gold now even with the considerable run up in price, but where is the price target? Where is overvalued?

You may very well be right about gold... but I'm a little worried. Getting in near all-time highs is always dangerous. In addition, this reminds me a lot of oil sellling at 200. The thesis for many was "there's a limited supply of oil and demand will only rise." However, with that thesis, you could just keep saying that as oil rises forever--- and many people got hurt buying near the highs. Gold reminds me a lot of oil a couple of years ago--- and it seems to be more of an "idea" than a fundamental investment to me. Very good post though and I love the discussion!

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#9) On December 04, 2009 at 10:52 PM, XMFSinchiruna (27.02) wrote:

Prodigy16

Thanks for commenting!

This correction will amount to practically nothing.

I let a small bout of panic set in in 2006 during a large correction from $700 gold down to I think it was $450 or so. After watching gold come back strong, I had sold my last position into weakness.

Last year, I watched calmly as my real life portfolio lost more than 70% of its value, because I maintained ultimate confidence that gold was merely correcting and would be back above $1,000 again in time. I have since regained those unrealized losses.

I have maintained a $2,000 long-term price target since 2006, and this has not changed one iota. My target for silver is $50, as per the article above.

$2,000 gold does not require "everyone using it as safety for their wealth". It only requires a miniscule proportion of investors to seek some measure of protection thereby.

That's not to say that $2,000 will be achieved in a straight line. I could see this correction taking us to $1,100, or possibly even $1,050. $1,000 is possible, but only with a surprisingly strong dollar rally. I said in the article posted at the outset above that I believe we will not see three-digit gold prices again during this bull market. I won't say it's outside the realm of possibility, especially when we have a carry trade condition in the USD now that could cause a rapid unwind and snapback rally for the USD. It's just extremely unlikely after the price strength we've seen since the September breakout.

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#10) On December 04, 2009 at 11:02 PM, XMFSinchiruna (27.02) wrote:

And for everything else you need to know about gold and silver, go to binve's blog post from this evening and explore his comprehensive links therein. :)

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#11) On December 04, 2009 at 11:06 PM, blesto (31.38) wrote:

TMFSinchiruna

I see and agree with what Prodigy is saying. But as I understand it you feel a "probable" entry point is if gold dips below $1050.00?

I'm also interested in where from and/or who from is the most reliable to buy gold? 

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#12) On December 04, 2009 at 11:19 PM, XMFSinchiruna (27.02) wrote:

blesto

APMEX, hands down

Is for an entry point, I have not simple answer. It depends ... if one has zero gold exposure, then any entry point can be considered a good entry point. The possibility for one central bank action or other game-changing headline to cross the wires and send gold up to $1,650 in the blink of an eye does exist. it may not be the most likely sceanario, but it could happen. In a secular bull market, the greatest danger is being on the sidelines when the market goes parabolic.

For those with some exposure still long who may have reduced allocations recently, I indicated that I will begin nibbling in earnest near $1,100, while I would get more aggressive building positions at $1,050. 

I fear that those who just wait for $1,050 to get long again could easily be left behind. I advocate a more gradual approach to both the cash-raising process into strength, as well as the re-purchasing process into weakness. That is the formula that has been working for me since 2006... staying long with 85% or more of my pm allocation, while shifting the remining portion in and out on perceived micro trends using a combination of fundamental and technical analysis.

A dime for your thoughts...  :)

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#13) On December 05, 2009 at 12:13 AM, blesto (31.38) wrote:

I just added a link on my desktop to the APMEX website. This is something I'm gonna start to follow more closely. 

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#14) On December 05, 2009 at 5:26 AM, SnapDave (58.99) wrote:

TMFSinchiruna

 If you refuse to take my word for it, that's great, because your dissenting comments below are worth $0.10 each towards a very worthy cause! :)

 I have a small amount of gold exposure and I'm looking to add more and I'm way long silver.  But, I'll give it a go for the cause.

The rise in gold is being driven by hot money which will soon lose interest.  It will go down and stay down.  Forced selling by another big deleveraging event could also cause this.  

If you believe in an apocalyptic downturn, what good is gold if you can't eat it, especially some ones and zeros on a computer that say you own small pieces of miners? 

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#15) On December 05, 2009 at 5:27 AM, SnapDave (58.99) wrote:

Why APMEX?

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#16) On December 05, 2009 at 5:36 AM, uclayoda87 (29.30) wrote:

TMFSinchiruna

Your recent blog post concerning SLW was timely, just before the marked sell off last Friday.  I got an initial stake at less than 16 and again bought more today when it again dipped below 16.   More importantly, when I was looking at other small miners on the Google financial site, I ran into TGB, which I bought early Monday morning.  Other fools also saw this developing and were very close in predicting what happened.  I now have open orders for CDE and AUY.  The theme of small Canadian miners and Asian money seems to be working for me this year.  I bought a small speculative bet on TCK earlier this year, but I never added to the original 100 shares, which was a bad move.  I'm hoping for the pundits to help hold down these stock prices until I get all my bets in.  Then they can let the public know that the unemployment rate was off by a little and that the Fed has no intention of endangering the recovery.

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#17) On December 06, 2009 at 12:36 AM, DarthMaul09 (29.76) wrote:

5. 76 on the USDX remains the critical line of support/weakness for the USDX. Any convincing move above 76 may gather near-term upside momentum for the USD. Any severe break back into 74 or lower places the key support level of 72 at risk of failing (at which point it is "look out beloooowwww!").

This is the key to long-term gold and silver investments.  The buying opportunity created by the fear of a future fed rate hike was a nice holiday gift, but the real present will show up when this delusion is no more.

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#18) On December 06, 2009 at 8:47 AM, XMFSinchiruna (27.02) wrote:

SnapDave

APMEX because they have an impeccable reputation for both quality and consistency of service as well as a nice variety of products with the lowest premiums I've seen.

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