Aprils 26, 2013 I wrote an article Gold and Silver Dead Cat Bounce and More Carnage to Come or All In? where I cautioned gold and silver investors that the carnage may not be over.
My advice is still to dollar cost average into a position in gold and silver. But after this recent run up in price to the present level of $1,470 an ounce for gold, I wouldn’t be chasing it. Silver has been a bit of a laggard compared to gold recently, and is showing greater signs of weakness, despite the more than $1 plus run up in price yesterday as it breaches $24.00 an ounce. $1,500 and $25 would be the round figures I see as resistance and the potential for the last and possibly final leg down for precious metals. I would be patient and wait for the next leg down.
Since writing that article, gold has fallen over $100 an ounce and silver about $2 an ounce and the dollar has moved to a 3 year high, now sitting at over 84 on the index.
I wanted to get some thoughts out there as to the gold and silver markets as I prepare to write a bullish article in the next week or so.
There has been a lot of selling of the gold and silver ETFs the last quarter as big hedge funds are either forced to liquidate because of withdrawals from clients, or chase after other better performing markets like the stock market which has set record highs. But keep in mind, hedge fund managers as well as mutual fund managers, on average, can’t beat the market. So to follow their lead is rather foolish. In fact, I think it is rather foolish to chase the stock market for higher returns even though I think it can still move higher over the short term.
Dollar Cost Averaging Out of the Stock Market and Into Precious Metals
For the last couple years I have been recommending clients dollar cost average into a position in gold and silver, hoping the price of gold fall further to obtain a better overall price. This has been what has occurred and those dollar cost averaging into a position should be close to the proper allocation to the metals soon. The higher dollar is still something I expect, and we still will probably get a break of the mid-April low in gold and already have broken to a new low today in silver when it hit $22.16 an ounce temporarily.
The advice I am giving right now for those in the stock market is to dollar cost average out of stocks as we see these new highs being made. The psychology of most stock investors though will be to sell once the stock market starts retreating. And retreat it will as the data shows it is clearly forming a bubble as I wrote about recently in Economic Data Show Potential Of Stock Market Bubble.
Some of those profits can be rolled over into physical gold and silver.
What Are My Clients Doing With Their Precious Metal Holdings?
I don’t have anyone selling their physical gold and silver. Holders of paper gold and silver investments sell because it is easy to do so. Market Makers would love for them to sell. But Market Makers can’t get you to put your gold and silver in a box and ship it back to the supplier to sell it. That takes a lot of effort. And Market Makers haven’t been able to stop the record amount of individual buyers who have been snapping up supply the last few months.
While the likes of Goldman Sachs closes their short position and J.P. Morgan Chase tell you they are expecting higher prices for gold by the end of the year, at over $1,700 an ounce, there does seem to be some bullishness on the horizon. My next article will be a bullish article with an 80% probability of being correct. While a stronger dollar, higher stock market are tempting investors to chase returns, the smart investor is bailing out of the stock market on an incremental basis and buying the beaten down assets; gold and silver. But not buying the paper substitutes. They demand the real thing.
In my next book, Illusions of Wealth, I will be discussing what is perceived wealth versus what is real wealth in more detail, in my attempts to predict what’s going to happen next in the markets. Stay tuned.