When it comes to making predictions in the gold and silver market, there are many variables to consider. Sometimes I’ll got out on a limb and publicly make a statement on what I believe will occur with gold and silver prices based on the information I’ve compiled. I come to my conclusions by weighing the pros and cons of the data. These predictions are only for short term analysis as my long term philosophy is to hold physical gold and silver to counter that portion of your portfolio that is subject to U.S. dollar risk.
On September 29th, I called a top for “traders” of gold and silver. Traders mean those who own gold and silver mutual funds, ETFs or mining stocks as well as those who have purchased physical gold and silver on leverage. For holders of physical gold and silver, I recommended dollar cost averaging in or holding on to their metal. The HUI was trading at 512.56 back in September, and is presently at 503.81. Gold was trading at $1,314.10 then and is presently trading at $1,313.70.
About 3 weeks after I made that call, the HUI had dipped by October 21, 2010 to 494.11. I subsequently wrote that the call I made to take profit in September was a good one as it seemed the HUI couldn’t break out to new highs and had subsequently fallen 3%.
However, because of the $600 billion Bernanke/Fed stimulus of what became known as QE2 (the second round of Quantitative Easing), gold proceeded to move higher, surpassing $1,400 an ounce. During this time, and because of the length of time in the run up in the price of gold, traders could have started taking profit if the data I provided on September 29, 2011 was convincing enough.
On 12/3/2010, I updated the October article writing the following;
While I still feel there will be the inevitable pullback, only the traders who own mining shares would be the ones who are hit. Holders of physical gold care not that it falls in price on a temporary basis, on its way to much higher prices.
Prices seem to be moving higher on the way to year end mutual fund maneuvers where they want to show investors they held gold mining stocks since they had such a great year. The pullback will come, but it may not occur until January. The March – June period may set us up for the “buy of a lifetime.”
The third “euphoria” stage hasn’t hit gold yet. People are still not familiar with gold as an investment because their brokers are still biased against it. I’ve been writing about this bias for years. Some brokers are seeing the light, but they still don’t sell physical bullion gold and silver because they don’t know how to. I’ve had brokers calling me up quizzing me on how to do it.
Dollar cost averaging into a position still makes sense. Price is secondary to ownership. Paper stocks and trades are secondary to owning the physical. This will be come more apparent in the years to come.
Flash Forward to January 27, 2011
What I want to do in this article is compare my reasoning for calling a top for traders in September, versus what I think will occur in the short term for gold and silver today. It’s the data I want to analyze to try and predict whether a short term top is in, or whether we will reverse course and head higher from here. My goal is to try and help investors in gold and silver and those thinking about investing in gold and silver take the guess work out of the equation, and make good investment decisions to buy, sell or hold.
What Does the Data Say?
The following table represents the difference between the data of September 29, 2011 and that of today, January 27, 2011, with my comments in the right hand column and final conclusion below the table.
Click on chart for larger image
Conclusion
While there is short term euphoria/cheerleading going on in the media with what is perceived as a rebound in the economy, and with certain folks (eg. 1,2,3,4) coming out claiming the gold bubble has been popped (when they were never a part of the last 10 years of higher prices to begin with), the economic data speaks for itself. The short term trend is still down for gold and silver, but to an investor in physical gold and silver, as I described in December, price is secondary when you dollar cost average into the metals.
What Are You Waiting For? Invest in Gold and Silver Now…
The problem with most investors though, is they see gold and silver going up and up in price, but sit there and do nothing because they think the price is too high. For you people, NOW is the time to start investing in gold and silver if you haven’t already by taking advantage of this gift of lower prices. Don’t wait till we break out to new all-time highs and then invest. Buy American Eagle one ounce coins and 90% silver bags that offer you the most gold and silver for your money while at the same time offering the best liquidity.
The fact that price is secondary though is twofold. As the price of gold and silver move lower, you are obtaining a better overall price by dollar cost averaging in, waiting for the future price of gold and silver to move much higher.
Why will the future price of gold and silver move higher? Because a nation cannot build a sustainable recovery on a foundation of debt. Add to this equation the problems with the nations top banks and recognize that what we are experiencing are the ocean waters of debt presently receding away from the beach only to return in tsunami form overwhelming those unprepared.
How are you prepared for this scenario? Do you own gold and silver bullion?
Today, the premiums for gold American Eagle one ounce coins and 90% silver bags are the lowest you’ll see for years to come. As the limited gold and silver supply is chased by more and more U.S. dollars looking to hedge currency risk, the premiums to acquire these metals will move higher and higher. In the years ahead, you’ll be looking back at these prices as a bargain no matter what happens in the next few months.
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About Doug EberhardtDoug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
Disclosure:
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.