Despite all the reasons to be bullish gold and silver all of my indicators tell me this is [still] NOT the time to be buying. Words: 910
So says Larry Edelson (www.uncommonwisdomdaily.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted and edited […] below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) Edelson goes on to say (and see his video** below):
While most investors and traders are super bullish right now on precious metals (and I can hardly blame them, as I am very bullish long term on the metals sector as well) the fact of the matter is that the recent leg up in gold and silver is not sustainable. A pullback is way overdue. In fact, I now have concrete evidence from virtually all of my indicators that gold could fall to the $1,316 level, and then to the $1,250 level. I expect silver to experience a sharper decline, sliding all the way back to $24, minimum, possibly even to $21.
Let Me Substantiate My Position on Gold and Silver
Now, I know what you’re thinking: “Is Larry nuts? How could gold and silver pullback so sharply when the dollar remains weak, when the sovereign debt crisis is slamming Europe hard and when there are no signs from Washington that they are going to do anything serious to ward off a sovereign debt crisis in the U.S.?” I hear you, and they are all good questions, so let me give you my answers:
First, keep in mind that all markets have rhythms of their own. They have distinct bull and bear cycles that can be defined in terms of decades, years, months, weeks, and even days. In other words, markets can be in long-term bull markets on a yearly basis, such as gold and silver are, but they can also present interim bear markets that last days, weeks, sometimes even months.
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In gold and silver (and most commodities) I believe we are now entering very short-term bear markets which could last just a few weeks, or even a few months. It’s too early to say. Meanwhile, the long-term picture for precious metals and virtually all natural resources remains very bullish.
Second, pullbacks in precious metals and commodities can occur even though, yes, the dollar remains in a long-term bear market, and yes, the sovereign debt crisis continues to unfold. The reason is again, largely related to trading cycles. Right now, commodities cycles show buying pressure should decrease, and selling pressure should increase.
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I suspect that we will see sharp selling in stocks also develop, as those cycles are turning down as well. The only cycles really pointing up now are in the bond market, which is consistent with all of the above in that investors who pull money out of precious metals, commodities, and stocks will likely seek out some safe havens in the bond markets (though any bond market rally will likely be short term).
Third, Washington will get hit with the sovereign debt crisis but, according to my work, that is not likely to happen until the second half of 2011.
How To Play This Short-term Decline in Gold and Silver
Given [that] a big pullback is likely… I would consider [doing the following:]
1. Do not exit any mining shares except for those where you have gains of 75% or more. That way, you’re taking some — but not all — of your profits off the table.
2. Hold all other precious metals-related investments and look to replace any shares you sell when the pullback in gold and silver is complete. Gold, silver, platinum, palladium and virtually all natural resources have much more to go on the upside, and will likely double, triple, quadruple, and even quintuple in the years ahead so while you might have to hold some positions through a sharp pullback and a consolidation period in this sector, it will be worth it.
3. Do not consider going short the market unless you are an aggressive trader or following professional recommendations.
4. Be fully prepared to ADD aggressively to your metals investments as soon as the pullback is over. Again, that may be in just a few weeks, or it could be a couple of months. Either way, you will not want to miss the opportunity to buy at the lower prices coming up.
While I expect gold could fall to as low as $1,250 and silver to $21 — I also expect…we will see another round of one record high after another for gold and silver in 2011.
(Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. To view archives or subscribe, visit www.uncommonwisdomdaily.com.)
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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