Here at Precious Metal Investment we have been agonising over what the current state of the markets in gold and silver is telling us.
Yes, we do have an opinion but are reluctant to express it for fear that it may lead our followers astray.
The truth of the matter is that our thoughts now seem based on theory and not on the present facts. As every experienced trader will tell you, the market has a way of catching the unwary and the over confident out, often at extreme cost.
The ‘contrarian’ school of traders recognise that this happens often enough to encourage them to continue in their belief. In other words it can as profitable as following the herd!
And let us not forget the encouragement that contrarians have been given in the last eighteen months, and particularly in the last three weeks.
The media has gone to town on gold, even the popular TV general news channels have been extolling the virtues of buying gold and the majority of respected stock market information and tipster web sites have been telling us that gold will go to $1000 an ounce very shortly, and march onward to $2000 plus sooner rather than later.
Actually many predicated that $1000 an ounce would have been passed long before now and to be honest we were in that camp. As believers in the fundamental, rather than the technical, reasons for trading in the longer term we felt, and still do, that there were many logical arguments to support our very bullish stance.
The market, however, is once again showing us that logic is often misplaced, and that it will write its own ever changing agenda to challenge traders.
Gold’s market action since $1000 an ounce was in its sights three weeks ago has been difficult to analyse.
There seemed last week to be firm support at around the $910-$920 level which when breached quickly regained its ground. We felt there was reason to believe that this would herald a move back to having the $1000 level in its sights this week but were reluctant to express our opinion on this web site until Monday’s trading confirmed our expectations.
It did not, despite the continuing cascade of bad economic news from around the world.
What will now transpire is uncertain, these prices could be a buying opportunity or a move down to around $880 might provide a floor. Who knows?
We think we do but will only commit to saying that we are still holding our present position in both gold and silver and have no intention at this present time in either adding to or selling off from our positions until there are clearer fundamental indicators.
Our thought is that there could be two factors at play here, one is investor fear and the other is a desire for liquidity. Because precious metals have been an investment backwater for twenty years, few traders, scalpers to long-term players, have specialist knowledge of the market.
In the last few months more and more have been dipping their toes into the market and it may be that many of these are now being governed by the fear factor and cashing in some profits just in case.
But then again maybe the contrarians are playing a hand and shorting the market.
We may be, as some pundits have expressed, approaching a general stock market bottom when there should be some bargains to pick up. There is a strong argument for being liquid and so being in a pole position to take advantage of any upturn.
Remember that historically there has been a period in every recession, even the ‘great depression’, when their has been a significant stock market rebound before eventually falling again, so many are expecting history to repeat itself.
For what its worth we will continue to follow part of the ‘Sage of Omaha’s’ advice and invest for the long term, in other words we will stick with gold and silver.
Whether that turns out to be value investing we shall just have to wait and see!