Gold’s Correction Will Not Last Long

January 22, 2011 | By | Reply More

Gold & silver continued their correction throughout the week. Weak hands are being shaken out,  the  need for liquidity in anticipation of demands from the worlds tax men, negative readings by the technical crystal ball gazers and the adjustment of positions by the hardcore hedge fund speculators are playing their part in the fall of both metals.

Quite probably there are other factors involved that us mere citizens are not privy to while leaving only the elite politicians and their bedfellows to profit from the fallout of their actions.

Fundamentals Gather Strength

Whatever the reasons for this correction, we have to admit it has been sharper than we anticipated.
However the unalterable fact is that the fundamental reasons for these two precious metals to have enjoyed their long term uptrend remain in place.

In fact this week has seen even more evidence that inflation is gaining pace, with even those two dynamic economies, China and India, well and truly drawn into the web of the declining purchasing power of paper currencies.

No viable alternatives for the protection of wealth and store of value to gold and silver has emerged and nor is it likely that any will. As evidence of that we read that both metals are being heavily bought in their physical form to the extent that delays in delivery are not uncommon.

Follow The Trend

With that in mind and joining in with many other honest observers who admit to an inability to call the bottom to this present correction we have resorted to the tried and mostly tested maxim of following the trend in the firm belief that the long term uptrend remains in place and will do so for a good long time to come.

We would be unwise not to consider that there is a possibility that the current long term trend may be reversing, after all sooner or later it must happen but it is our belief that a reversal is still a long way off.

Not a Bursting Bubble

In the meantime we continue to experience tests of our faith with the technical gurus bombarding us daily with breakthroughs of this resistance or that moving average, overbought indicators, momentum, ratios, etc.,etc., together with Wall St and the media having plenty to say about bubbles bursting.

This plethora of anti gold sentiment has led us to back into the option market and have bought calls on both GLD and SLV this week. If the market continues its reversal we shall be looking to buy further calls next week dependent upon the extent of the fall.

Going Short is Dangerous

It is not entirely our wishful thinking that encourages us to expect significant rises in the metals and their producers. Hopefully regaining lost ground in the early spring and leaping to new heights by the summer. We believe that the odds are on our side, if we didn’t we would not be gambling on the long term uptrend staying in place .

There is one scenario we will avoid like the plague, at no time will we go short either gold or silver or their producers whatever the technical clairvoyants tell us.

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