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Why Gold and Silver May Have Bottomed

18 comments

[Have Gold and Silver seen their lows for this correction? Were encouraged to think so, for two reasons. First, downtrends in both Comex June Gold and July Silver reversed on Tuesday from precisely where they should have if the long-term uptrend is to be judged healthy. Second, our astute friend and mining stock consultant Chuck Cohen, who turned cautious on bullion just before the correction began, thinks the selling may have run its course.  In the guest commentary below, he explains why. RA]

Like Freddy Krueger, it’s back. The infallible New York Times contrary indicator has returned for another testing. If you remember last August at the market bottom, amidst the palpable gloom on Wall Street, the Times was moved to interview superbear Bob Prechter on the dire market situation, not coincidentally within a week of the bottom. At the time, I mentioned the Times contrarian indicator in a lengthy essay published at LeMetropole Café, 22 Things to Look for When Gold Finally Makes Its Top.

For some amazing coincidence, since the Times rarely takes sides at the markets, when it does it is usually right on the money — on the wrong side. Lo, last Sunday, one of the Times‘ savvy financial reporters wrote about the seemingly endless gold bubble and the danger of getting caught in it. Read it and see what I mean. In particular, note the clear logic that gold has had a major correction of 4% after doubling from its bottom in 2008. The size of the correction is definitely proof that what goes up must always come down — except for the thousands of positive articles the Times put out on housing through the mania several years ago.

If the Times barometer continues to hold, we should be ready for something very special for the anxious gold community. For the first time in months, my own reticence has receded and I believe we are at, or nearly at, another terrific buying point for the gold shares. You know I have been cautious for several months especially as the spike of silver was in full bloom, and as the bank stocks continued to deeply underperform the markets, both definite warning signals. But with the drop in silver, gold and other commodities as the dollar rallied, the speculative air has seeped out of these markets. And it feels good to be positive again. Whether or not this will be the start of THE move in the shares, I don’t know, as it has appeared to be so on other occasions, only to result in disappointments.

When to Bail Out…

You can be certain that a major top in gold will not come until the Times has a major interview with a true gold bull like Jim Sinclair or Turk as it did back in May 2005, at the top or when you have a major front page article with a large price chart of the yellow metal.

But besides the Times article I have some other strong reasons for believing the worst is over. In brief, here are some of them:

1. The sharp drop in sentiment in silver and in the Hulbert Gold survey, which fell from 74 to 7 in 4 days. Who says gold buyers don’t panic?

2. The heavy volume and gaps in the HUI shares over the past 10 days. Interestingly, this week the shares are beginning to outperform the metal.

3. The incredibly low level of the Rydex Precious Metals Assets–now back to the point in 2008 when gold was almost 50% lower.

4. The bold, confident talk of the end of the commodity bubbles in the media.

5. The mushrooming number of correction callers in Kitco.

6. The report that George Soros has sold out his gold (apparently about $100 lower.) George Soros is no Jim Sinclair when it come to gold. He was a nouveau bull.

My chief point is that if you have been in cash anticipating a decline in the shares, now is the time to start to nibble or even buy on weakness. Once a bottom occurs, many of the smaller companies could scoot up 50% before you can ever get in. It is uncomfortable to buy stocks only to see them fall more, but it is also wiser to buy on weakness when many of the signs are turning so positive. I’m here for some suggestions and help.

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Leave a Comment

  • david May 20, 2011, 12:25 am

    BTW, I notice that CEF is at a discount most days now. I know it’s paper gold/silver, but I trust the managers of CEF more than most. Why not buy at a discount rather than the premium usually accompanying up-trends?

    Reply
  • david May 20, 2011, 12:23 am

    You just don’t know when the gold & silver price is going to get legs. You could wait until August to buy, but if you like the prices now, why not buy some? Then if prices go lower, buy more! Who is it, I think Stewart Thomson, who says we ought to act more like little old ladies at the supermarket. When things are on sale, she buys. Instead, we tend to dis-value things that are low, and wait until they’re high to buy. Crazy.

    Reply
    • fallingman May 20, 2011, 4:47 pm

      Precisely. You’ll never know for sure what is gonna happen and when. It’s all just glorified guesswork. But the long term trend is as clear as it can be. Buy some now and keep buying if you get more weakness…and consider every opp to buy at these levels or lower an outright gift.

      It isn’t a complicated strategy and it works. It’s just hard to do.

      Ignore the chatter, and the charts, and the seasonalities, and buy. Sell puts or covered calls if you’re really worried about timing.

      Reply
  • Keith May 19, 2011, 10:05 pm

    If it were August or September I’d feel more confident. But bottoming in May? Seasonally speaking, the idea doesn’t hold water. This time of the year it’s sideways or down for gold. I’m not betting this time will be different until I see some good action to the upside.

    Reply
  • Marc Authier May 19, 2011, 7:12 pm

    So does the Economist magazine. Anglo-american New World Order scum hate the precious metals. Makes their dirty corrupt ponzi scheme look bad.

    Reply
  • Robert May 19, 2011, 6:12 pm

    “WHY is Prechter a super bear? ”

    -Because he believes money is simply an object of faith, and not an object of personal value, therefore he can’t or won’t acknowledge that Gold has superior monetary attributes to articles of pure credit.

    “or Sinclair a super bull”

    -Sinclair believes Gold is money, and is the ultimate extinguisher of debt.

    Who is right?

    Reply
    • Keith May 19, 2011, 10:12 pm

      That’s a good laugh. I vividly remember an audio newscast with Prechter not too long after gold and silver made their 08 bottom where he stated….

      “there’s no way silver is going back up to $20 an ounce”

      I think it was at $15 and change at the time.

      Reply
  • R Kuester May 19, 2011, 5:01 pm

    To buy or not to buy ….I would surely like to hear more rationale behind the opinions . Like WHY is Prechter a super bear? or Sinclair a super bull? Can we really assume that QEIII must be entered into? Doesn’t Europe in general feel entering into austerity is the wiser thing . China raises rates to combat inflation while buying more gold ! What of the Trillions in Derivatives out there that must be deflationary if there’s another Liquidity freeze. Will Congress be as quick to Bail everyone out this time …And what of the looming debt crisis of the states that will require austerity since they can’t borrow anymore?Houusing growth is a dream too.

    Reply
  • danny May 19, 2011, 3:39 pm

    What happened in May,05? Looking at GLD chart, I wish I had bought then!!!!

    Reply
  • ben May 19, 2011, 2:56 pm

    You can be certain that a major top in gold will not come until the Times has a major interview with a true gold bull like Jim Sinclair or Turk as it did back in May 2005, at the top…

    If we have a repeat of May 2005, I guess you believe gold will double within the year? While as a holder of gold I like what you are saying, when you get your facts so mixed up it ruins your credibility.

    Reply
  • Martin Snell May 19, 2011, 3:52 am

    I think we have a window for a bit of a rally, but the end of QE2 may be as far as it gets. (the mining stocks sure do look like they could go for a nice run, but going counter to the overall market looks tough).

    For the next couple of weeks, while raising the debt ceiling is debated we probably have no new net issues of federal debt BUT we do have the daily POMOs, so there will be a bigger than usual net infusion into the markets until June 30 (FED doing the infusing).

    Once the debt ceiling is passed (before Aug 2?) we will see a catch up issue of debt (a few hundred billion quite quickly to replenish the coffers), that will drain money at the same time as the end of QE2 means no more FED infusion – a double whammy. All this will be happening in the traditionally quiet summer period with even lower trading volumes … could be interesting … even more so with states having to cut more (state budget years start July 1) and the economy starting to look like it is running out of steam.

    Reply
  • hy-nyc May 19, 2011, 2:52 am

    I feel that the metals and the pm’s will be volatile as we enter the end of QE 2. Dollar might be going into a strong bull trend due to more debt crisis in euro land. Deflationary forces can overtake the market for a while before we reverse gear back to the inflationary sentiment again and start the uptrend in the metals and pm’s.

    Reply
  • john May 19, 2011, 2:47 am

    What makes the powers that be drool? What has been the number 1 solid asset every since the Pharos? GOLD.
    Gold and silver, the only real money. Fiat is paper money,right! Wrong, Fiat is worthless toilet paper. Hence our masters cravings for: Debt,gold and silver and anything else that they casn make a % on,ie:roads, bridges,airports,water etc. Hence the big privitization scam. BUT, 3000 years of history adds up to: Forget the mumbo jumbo, Go long on pysical gold and silver

    Reply
    • ebear May 19, 2011, 1:57 pm

      “Fiat is paper money,right! Wrong, Fiat is worthless toilet paper.”

      Don’t throw it out! That’s bad for the environment. Send it to me instead. I’ll recycle it for you.

      Reply
  • jj May 19, 2011, 2:29 am

    Instead of trying to guess at the next upleg in pm’s why not wait for the official announcement of QE#3 as it may well be played out just as it did in 2010 as further stimulas is leaked by another Fed speech then a couple months later its made official. Last August was the low for everything priced in US$’s just as Bennies speech suggested further stimulas was coming.

    I’ll wait for the wind at my back before getting really long gold and silver again, till then I’ll just sit on my original physical position bought in 04.

    Cheers!

    Reply
  • Pat May 19, 2011, 1:48 am

    Hard to imagine the PM shares going higher without the ES going higher also. They have basically traded in tandem for the last 5 years.

    About 2 weeks ago Cohen was warning of a stock market collapse. Actually he’s been calling for a collapse for about a year now. If that happens, the PM’s will probably collapse as well, along with everything else in this “all one market” . So it would be very unlikely to have the PM’s take off and the ES crash.

    Reply
  • Robert May 19, 2011, 12:43 am

    I spent the post two weeks bargain shopping, and actually got filled on some bids that I thought were really too low to ever see the light of day… some of these positions are already up 10%

    Throughout this May correction Silver and the Miners have been obliterated while Gold has actually held its own pretty well, so I have been trying to determine which of these conflicting indicators would drive the momentum out the other side.

    With Silver and the miners getting hammered in the delivery month of May, while Gold had a relative respite from the carnage, I can’t help but think that there’s another shoe out there ready to stomp on Gold’s price during the delivery month in June (just as we get closer to the “official” end of QE).

    If the big money hits Gold hard in June, they won’t have to expend any capital energy hitting silver again because silver and the miners will just follow gold down out of sympathy.

    I’m inclined to think this correction will play out as a season-long move, and we are starting to enter a brief spike move up (call it a dead cat if you must).

    I will be looking to book some short term profits on the new positions I entered around Silver33 as we head into first day notice for June, unless some new external fundamental market factor (like news that Mexico really IS going to monetize the silver libertad) comes in and trumps the technical forecast.

    Reply
  • Cam Fitzgerald May 19, 2011, 12:36 am

    I am all ears for good ideas Chuck as I happen to agree Gold and Silver stock are both good bets right now. I was hoping to see Silver break below thirty but it does indeed look to be reversing higher and there is virtually no ready supply of physical anywhere. Waiting lists yes but it seems the days I could just walk into my favourite place and fill an order are long gone. Good dividends appeal to me now.

    Reply


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