Precious Metal Group Caught Up In Price Conflict

April 14, 2008 | By | 2 Replies More

Precious metal market analysts were caught up in a conflict of opinions in the last week over the next moves in platinum group metals, silver and gold prices.

Looking at gold, the catalyst for the sector, we read of projections of a gold price over $2000 an ounce by the end of the year at one end of the scale down to $650´ish at the other.

The problem is, of course, deciding whether it is the bull camp or the bear camp that provides the most convincing arguments.

Given that many of the pundits have a vested interest in seeing the market go one way or the other does not disguise the fact that, with very few exceptions, their arguments have a great deal of merit.

One that caught our eye came from a bullion trading source who stated that a significant price rise will occur by the end of the year due to a number of factors that include no US interest rate rise by the year end, worldwide monetary policy, supply and demand imbalance and the age old ‘gold is a safe haven’ perception.

Who can argue against that logic?

Then we came across the opinion that the major activity in gold will continue as straightforward commodity trading with normal speculative input. In the event that the US recession spreads its tentacles worldwide gold and other hard commodities will experience downward market pressures.

This perception prompted the downturn in gold in the last two weeks from the $1000 level to below $900. Yet another believable scenario and projection.

Thank goodness that there have been other precious metal buffs that consider the last two weeks price action is no more than an entirely realistic correction after the extended bull run enjoyed by the sector and that normal service will be resumed in due course.

The argument in favor of this viewpoint is that the spot gold price quickly came back to a decent level above $900 and has stayed in that area for a number of days.

Let us not also forget the growing influence of ETFs in the precious metal market sector.

Not only is there an increasing number of pension and industrial funds using these easily traded vehicles to accommodate their growing interest in the sector but they are being recognized by more and more individual investors and speculators as an easy entry option to the market. We like ETFs that actually hold physical metal for two reasons.

ETFs that buy and sell are helping to drive the market literally on a minute by minute basis and that also gives them the substance that tracker ETFs lack.

That is not to decry the ETF market in any way as they all offer entry to markets and the safety of spread previously denied to the individual investor with limited resources. It is just our own old fashioned and very personal opinion.

For the record we agree with the consolidation argument, feel that if the stock markets take one or more hits like Wall Street on Friday during the course of this week we may see gold down to the $850 level (another buying opportunity?) before a slower but gradual rising trend resumes.

Two further points that commodity investors should consider. Has the link between the prices of oil and gold finished and beware of the prognostications of the gold chartists Right now an argument can be made for virtually every price scenario by scrutinizing the technicals.

We hope that you will be able to successfully find your way through the current minefield of opinion and leave you with one last thought.

Gold, silver and the platinum group metals have seen outstanding price increases over the last several years prompting many new mining exploration companies to come to market and existing major players to increase their activities both in upgrading their existing facilities and seeking M & A opportunities.

Shares in carefully selected mining companies offer buyers exposure to the precious metal markets at a lower cost and a larger potential percentage profit.

Although hostage to the market price of the metals they produce there is a longer reaction time as well as other factors such as hedging supply, take over or merger candidate, or an impressive new strike to name but a few. Greater profit opportunities do however come with an increased downside risk.


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Category: Review

Comments (2)

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  1. David Oldham says:

    I exited a long term position on gold at 997. I agree the various arguments both bull and bear are almost equally valid and the technical position right now is not clear. However I tend to be biased to the bull camp for the longer term and will position long again if and when the high is taken out. In the meantime I am happy to await clarification and will probably miss the train for any good shorting opportunities. Just my 1 cent.


  2. John Lloyd says:

    Hi David,

    I think your timing was excellent and I agree on balance with your long-term bull outlook.

    In this market there are just too many possible scenarios that could be played out over the next few months to have confidence in any but the shortest term technical indicators.

    Intra day trading could provide some excitement!

    I will look to add to my positions starting around $800-850 which could be a distinct possibility if a general market meltdown happens when illogical panic selling could set off a run on the metal.

    Otherwise I agree that a steady pull back to over the thousand dollar level despite any performance Wall St puts in should be a buy signal.

    I also wonder if there is any possibility that the Fed will change its stance on the dollar, as it did in the seventies, and stop helping the politicians and friendly financials and defend the currency by sticking up interest rates into the teens.

    That would not be good news for dollar holders of gold but I would still put ALL my sterling into the pot.

    Great to hear your views and I hope you get into some good trades whichever way the market turns.

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