Buy Silver, Buy Gold, Panic Selling Opens Opportunities

March 14, 2011 | By | Reply More

We are going to go out on a limb here and recommend that right now, Tuesday 15th March, will be a good time to buy silver and gold. The reason being that the world news is awful with not a bright spot to lift our hopes, whether it be economic, civil unrest, the price of oil, or even a looming food crisis, to name but a few of the many.

Both metals have taken a significant drop in price since Monday due to panic selling and a flight to liquidity to meet margin calls as stocks world wide continue their downward spiral since the tsunami crisis hit last week.

Although the Japanese crisis was a bolt from the blue, we believe that it only brought forward the long anticipated slump in stock markets. We did not expect that both silver, and particularly gold,would be so hard hit. Past experiences tell us that at times of unexpected disasters many tradeables get significantly marked down. The panic is excacerbated by dealers deliberatly overreacting for their own advantage resulting in adding fuel to the fire but in nearly every case there is a significant bounce back, and also usually in a short space of time. Clearly, if history is anything to go by, panic creates profit opportunities.

When the sad events of last week fade from the news, the growing awareness amongst the investing community that
the worlds economic problems are multiplying and that, as yet, no convincing remedies, short or long term are being proposed will refocus attention to the safe haven status of both metals.

Historically the people of the world have turned to gold and silver when times have become hard and the present evidence suggests that they remain of the same opinion when they perceive troubles in our modern day and age.

Although gold came off its highs last week and continuing so far this week this week despite the tsunami, Libya et al, we believe that it is in considerable measure due to two factors, profit taking and a desire for liquidity while markets are in a state of  uncertainty.

Silver, on the other hand, has remained remarkably resilient to any prolonged turn downward in the past week and on balance, we would lean towards putting our available cash into that metal in preference to gold.

There are other factors to consider, money rolling of the printing presses, better known as quantative easing, tries to find a home. One flight to safety candidate has previously been the dollar.

While recently it has been weakening, by the end of last week it began to shows signs of a strengthening against the other suspect currencies of the world. Monday saw that situation turn around pretty sharpish.

We conclude that it is likely to be in long term terminal decay, and its status as a safety backstop is on the retreat

The stock market has entered a period when the strong recovery from 2008 looks as if it has peaked, with many analysts forecasting a severe decline that now seems to be underway. Treasuries are even more shaky as increasing inflation is on the move in virtually all of the advanced, and not so advanced, world economies, driven by the falling dollar and other fiat currencies losing their purchasing power in the commodity markets.

That leaves us with commodities to put our faith in as our financial safe haven, and we know a little bit more about precious metals than base metals, corn futures, potash or any other commodities. At the same time it is worth repeating that we prefer to be where the action is, that is in silver and gold rather than platinum and its group of metals which incidentally have been hard hit due to the closure of many Japanese car and truck plants.

Whether it is buying long term call options (leaps) in gold and silver ETFs,or other speculations  in the mining sector, or just tucking away any spare cash in iShares Silver Trust (SLV) or a gold bullion holding ETF. When the there is a pull back, like right now, this seems like the only viable market for retail investors and small time speculators to be interested in. Silver looks set for $40 an ounce before long with gold at $1600 an ounce by the end of the year, hopefully much sooner.

If you are not convinced that silver and gold are on path to continue their strong bull run and hold SLV or GLD stock,
we caution you not to unload in this uncertain market. Think instead about buying put options in either ETF as insurance, an excellent option for the cautious investor. Put options will give youa guaranteed sell price should the
underlying stock fail to reach your target price or drop below the price you will cut your losses for. This is one of the reasons why we like ETFs in the precious metals sector .

If we are wrong about buying today, then we will not be that unhappy, as even better opportunities will open up as the pull back continues and we do like our so very suuccessful call option plays. Calling the market tops and bottoms
remains a mystery that no one has yet successfully and consistently called. WE should also tell you that we have taken
advantage of our own advice and bought Silver Wheaton Sept $44 calls @ $4.35, right now they look like a bargain to us.

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