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