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XMFSinchiruna (27.12)

Your Last Best Chance to Go for the Gold and Silver

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January 21, 2011 – Comments (16) | RELATED TICKERS: GG , AUY , EXK

I'm not calling a bottom to this correction, since I never underestimate the short-sightedness of the weak and margined longs combined with the idiocy of the algorithm-driven big money, but now that gold and silver equities have sold off substantially from their recent peaks, the attractiveness of the sector for those retaining confidence in the continuation of the multi-year trend has been significantly enhanced already. As I mentioned in my last post, I have begun to redeploy the cash I raised last month in a systematic way, gradually increasing the pace of redeployment as the correction carves deeper.

And yet, while near-term sentiment has certainly shifted on a dime and raised a hurdle for the longs to clear, murmurings of renewed credit distress in Europe and a severe liquidity crisis in Asia are crossing the wires. The SHIBOR, Asia's interbank lending rate that is the region's equivalent of the LIBOR, has surged monstrously in recent days from 2.5% to 7.3%! As I routinely remind those who spend too much time caught up with moving averages and retracement levels, the macroeconomic developments that no one alive can predict or control can rear their heads at any given instant ... laying waste to expectations based solely upon technical analysis. TA has its place, to be sure, but confidence therein must be measured in relation to the number of anvils hanging precariously above the dominoes of the global financial system at large. Those anvils are 100% unaffected by market technicals, and therefore fundamental factors trump technically derived expectations any single day of the week.

For all of these reasons, I believe we have entered a condition where, from this moment on until the last highs are taken out with fresh ones, this must be seen as your last best chance to go for the gold and silver. Optimized entry prices are logical to target, but those utilizing discount brokers may wish to ease into positions beginning now so as not to be left out in the event of a major pm-pushing development. I don't care whether $1,340, $1,280, or any old price ultimately ends up being the lowpoint for gold in this correction ... that will not affect my procedure for gradually accelerating buying activity into bouts of near-term weakness. [IMO, however, the likelihood of breaching $1,280 is very remote, if even it comes to be tested.] On the flipside, I'll likely begin to raise some cash anew once the next surge brings us beyond the $1,500 mark. I aim to raise a 15%-20% cash position into each successive breakout in gold and silver, and redeploy most of that capital systematically into each successive corrective pause. When you approach the sector in that way, you can truly come to welcome the pullbacks just as surely as you welcome the dramatic upswings. I still conduct TA, and I pay close attention to it. I still go into corrections with several likely support levels in mind, but I no longer care about trying to pinpoint the exact pivot point as I was fortunate enough to manage correctly a few times in the past. Such forecasts may inform the pace of my buying at a given level, but that's the extent of it.

Anyway, I thank you in advance for reading my latest submission, for voting in the reader's poll at the end of the piece, and for sharing your comments here, there, and everywhere. :)

http://www.fool.com/investing/general/2011/01/21/your-last-best-chance-to-go-for-the-gold-and-silve.aspx

 

16 Comments – Post Your Own

#1) On January 21, 2011 at 4:36 PM, kdakota630 (29.76) wrote:

Your timing is interesting since just this morning I read something from Peter Grandich (the 'other' Peter that I follow who wrote:

Gold ($1,347) – It’s been a very long time since I changed my percentages on gold holdings but I’m now boosting the minimum from 10% to 25%. The $1,325 area is major support and total risk IMHO is a test of the 200-Day M.A. around $1,275. With $75 downside risk and $650+ ultimate upside potential, I think it’s time to be aggressive again in physical gold.

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#2) On January 21, 2011 at 4:46 PM, Predaking (29.12) wrote:

Did you read the Jubak article from today where he declared 2011 not the year of inflation but the year of fighting inflation? I agree with some of the points he makes and it makes me think twice about buying commodity-related stocks. I won't be selling though.

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#3) On January 21, 2011 at 9:08 PM, 100ozRound (29.42) wrote:

Oh what I'd give to take a peek at your purchase history...

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#4) On January 21, 2011 at 9:30 PM, silverminer (30.49) wrote:

Just testing to see that I can comment... my attempt to comment on another blog failed for some reason.

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#5) On January 22, 2011 at 5:21 AM, minduza (< 20) wrote:

From David Rosenberg:

 "The U.S. dollar continues to soften and is perilously close to breaking below key 

support levels but despite that, gold just now broke below the 100-day moving 

average for the first time in six months — the 200-day moving average is 

$1,280/oz and in the past, periodic corrections like this have proven to be nice 

re-entry points."

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#6) On January 22, 2011 at 12:26 PM, nuf2bdangrus (< 20) wrote:

I'm debating whetehr to sell puts on gold, or go long and sell calls.  From a fundamental standpoint, I like platinum better, and it's showing much more price strength.  Up until this last PM runup, the approach to PM's was always to buy the correction and not the breakout.  And so I watched the breakouts and missed them.

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#7) On January 22, 2011 at 2:02 PM, FreethinkerKW (64.78) wrote:

As I routinely remind those who spend too much time caught up with moving averages and retracement levels, the macroeconomic developments that no one alive can predict or control can rear their heads at any given instant ... laying waste to expectations based solely upon technical analysis. TA has its place, to be sure, but confidence therein must be measured in relation to the number of anvils hanging precariously above the dominoes of the global financial system at large. Those anvils are 100% unaffected by market technicals, and therefore fundamental factors trump technically derived expectations any single day of the week.

 I enjoy your posts, but your ridicule of Technical Analysis sounds like the usual Motley Fool party line where it's called "voodoo" at Party HQ.

I will take a technical analyst who is based in firm money management practices and who uses stop/losses over any FA hack who spends hours parsing the financials of some company which is supposedly safe, sound and secure.

No less a genius FA stockpicker than Warren Buffett has recently announced that had it not been for the US Government, many of the comani9es owned in his portfolio would have been wiped out. 

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#8) On January 22, 2011 at 2:54 PM, silverminer (30.49) wrote:

FreethinkerKW

There was zero ridicule of technical analysis in my post. I think you may wish to reread what I wrote, and find where I indicated that I myself routinely utilize technical analysis to inform my investing decisions. I consider both approaches indispensible, but in the case of gold and silver I simply caution investors from relying too heavily upon TA to the extent that looming fundamental drivers are excluded from the equation. TA often works in gold and silver, until it doesn't. These are heavily manipulated markets, for one. For another, the dizzying complex of factors influencing prices require all the attention an individual can muster in the pursuit of due diligence. I repeat, TA is an incredibly helpful tool for guiding pm investment, but fundamental factors can and will trump technically derived expectations in dramatic ways over the course of this bull market.

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#9) On January 23, 2011 at 11:20 AM, Gonzhouse (24.16) wrote:

I agree that the recent price slide in precious metals is a temporary event.  As far as technical analysis, it suffers from the same deficiency as macro economic forecasting:  it's great at predicting the past.  Inherently, both operate within a fixed range of expected outcomes and the model works well when those parameters are in place.  But if reality goes outside of the parameters, the model doesn't work.  The conditions we have today (massive fiscal stimulus, sovereign credit risk, increasing consumption from emerging markets whose currencies are undervalued, etc.) lack a historical track record for the basis for macro economic forecasting or technical analysis.

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#10) On January 24, 2011 at 9:55 AM, fndr489 (80.23) wrote:

Sinch, what are your thoughts on Kitco vs. APMEX?

Thank you for all of your hard work and excellent articles/blogs.  Keep up the good work.

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#11) On January 24, 2011 at 10:01 AM, embodiedheart (55.77) wrote:

Has anyone had experience with Tulving.com ?

 

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#12) On January 25, 2011 at 12:34 PM, speedybure (< 20) wrote:

Sinch I think you might be interested in an article i recently published for SA as I discuss the convenience yield, something I;ve never heard talked about. http://seekingalpha.com/article/248146-silver-multiple-bullish-indicators-signal-breakout

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#13) On January 25, 2011 at 2:18 PM, hdotmom (< 20) wrote:

I am new to your postings (found you by luck) member of SA.  Things are changing I can no longer not take into account the economy...looking for great companies has worked but the time is here to look at the big picture..... I know my husband's company is a great company but jobs/profits depend on the economy.  So I am here and really appreciate your insight! 

 I have a question:  what is your opinion on holding physical gold and silver or slv and gld?  I understand there can be better upside to mining stocks but do you hold the physical or slv/gld and how much do you recommend if you do?

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#14) On January 25, 2011 at 3:27 PM, Valyooo (99.47) wrote:

Incase he doesnt get around to responding, he doesnt like GLD (i dont think he likes slv either).  He preferes CEF to both...I would assume he likes physical of both as well, but I could be wrong about that.

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#15) On January 25, 2011 at 4:02 PM, kdakota630 (29.76) wrote:

He also likes long walks on the beach, boxers more than briefs, and romantic dinners with chocolate covered strawberries for desert.

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#16) On January 25, 2011 at 4:39 PM, silverminer (30.49) wrote:

You guys know me well (except for the boxers part). :)

hdotmom

Yes, hdotmom, I like CEF for physical bullion. It holds approx. equal parts gold and silver, and in the midst of this correction the fund's premium ro net asset value (NAV) has dropped to a very reasonable 4% from previously much higher levels.

I do recommend avoiding GLD and SLV, and indeed most of the best-known bullion proxies due to significant red flags in their prospectus documents and the identities of fund custodians. Check out these articles for comprehensive context:

http://www.fool.com/investing/general/2010/06/01/how-to-get-physical-with-gold.aspx

http://www.fool.com/investing/general/2010/04/05/is-your-safe-haven-a-house-of-cards.aspx

http://www.fool.com/investing/general/2010/04/13/everybody-out-of-the-gold-pool.aspx

http://www.fool.com/investing/general/2010/10/27/the-silver-manipulation-bombshell.aspx

I can't offer guidance as to allocation in physical relative to stocks, since every investor's case is different in this respect. All I can recommend is that you take the measures necessary to lead you to the greatest sense of comfort in your overall allocation strategy.

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