For those who keep up with our daily commentary, you’ve heard us say often that metals still might pull back. On top of this, we repeatedly point out that each pullback is an opportunity.
As someone who’s been holding metals for many years, I’ve had plenty of opportunities to get excited about market movements. Last year silver almost reached $50. Gold looked like it might eclipse $2000. Those were exciting times.
Toward the end of the year we saw a strong selloff. What did we learn from that? Be sober. Metals still appear poised to go up for many years. However, that doesn’t mean that they’re always going up. We’ve tried to remind readers of this time and time again. Be encouraged when the metals go up. But also seize opportunity when metals go down.
Last December offered an excellent opportunity to distribute precious metals at low prices. In fact, as January came around, those who bought for Christmas looked like geniuses. But the end of February hit metals hard.
Remember, sentiment is central to markets. And when people get over-excited about a market, they blow prices beyond what the market can sustain. It’s happened in every major market at one time or another. Recently we experienced it in the housing market. In the late 90s it was the dot coms. These are cycles we should expect.
So, as gold and silver became overbought in February, a top developed in which dealers and traders changed their sentiment. They decided that precious metals had gotten too expensive and started selling. The result was one of the largest selloffs in recent history. And yet the upward (bullish) trend hasn’t been broken.
Take a look at our attached chart. I used ETFs to represent gold and silver prices because they update faster than spot prices. GLD is close to 1/10th of spot gold. SLV is about 80 cents below silver spot.
Here you’ll see what we’re talking about. Last month we saw a strong drop, offering the best opportunity of the year to buy precious metals, almost reaching December’s lows. While I would have loved to buy then, I simply wasn’t in a position to at the time, having bought a couple of weeks early.
But look at today. Today we hit targets offered a month ago. Some might think that those of us holding metals long-term would be bummed. However, I’m anything but. Today offered a great opportunity to load up at prices I missed a month ago. It’s actually offering another chance to jump in. And that’s exactly what I did. Watching the prices drop today, I was able to pick up another position about a quarter off today’s lows.
As far as I’m concerned, it doesn’t get much better than this. Of course, we could see more lows tomorrow. One analyst I read says silver might get as low as 26.67 tomorrow, a whole dime lower than today’s low. But, unless we have a major breakdown, I’m looking forward to seeing these go up strongly in the near term.
If they don’t, I’m not sweating it. We’re remaining in a precious metals bull market unless silver drops down below $20 and gold below $1100. But even then, metals serve as a strong foundation to any portfolio. They might drop in value, but if they drop that hard it’s likely that everything else is tanking as well. In that case, metals can’t reach zero. That’s why they should be represented in every portfolio.
One last comment: Toward the end of the day, the S&P 500 continued to sell off, losing about 4 points in the last half hour. For the day it was down 30 points. During that last 30 minutes, silver only dropped by 7 cents. Both gold and silver traded fairly flat all afternoon, refusing to give up further ground after about 1:30 EST, while the S&P gave up 10 points. This reveals excellent resilience in the face of a struggling market.
For your prosperity,
J. Keith Johnson
The Gold Informant