Has gold finally bottomed?

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Let me start by saying I think its hard for anyone to call a bottom.  Many experts do, and often they do so with the guidance of charts, fundamental analysis and other informed speculation.  I am no expert, but I do think were finally seeing a turn in the precious metals markets based on two critical factors.

The US dollar and gold have rallied together as of late.  This doesnt often happen, especially at multi-year highs in the dollar.  But it has for the past couple of days.  And during very large US dollar rallies.  As you can see in the chart below, for the past six months when the US dollar rallied, gold and silver were sold.

This is a convincing indication that the precious metals markets are looking beyond the myopic view of the US dollar index (which really only measures the Euro and Yen weakness/strength vs. the US dollar) and seeing that rising risks demand a safe haven.  It may also indicate that the US dollar rally is beginning to lose its luster.

We also saw that the tax loss selling last year did not push gold and silver to new lows, or break down the miners further.  This is a very powerful indication that sentiment bottomed out in the October/November bloodbath that was likely a capitulative event.

I am not ready to say that we are turning right now, but I do think that there is a good chance of it.  In essence, if the precious metals markets can look beyond the dollar, or better yet, the dollar can begin to give back its rally from late 2014, we will be in for a year of renewed strength in precious metals, and their miners.

The US dollar trade is as crowded as a trade can get and so many are short Euros and Yen that any unexpected surprises will roil the forex markets.  But gold and silver are telling us that doesnt matter.  That they can look beyond forex and see that the risks are strong enough to warrant a significant bid (and most likely short covering well see the COT tomorrow).

From a technical standpoint Id like to see gold trade above $1,260.00 on a sustained rally (closing the week on Friday above that level would be critical).  Ideally this price action would occur by the close of the second week of January, 2015.  After that I believe well see some short covering and less aggressive posturing from the sellers counting on another waterfall capitulation in prices.

If gold can make its way back to $1,400 by the end of the first quarter of 2015, then I do believe well see the momentum chasers come back to the table and start driving prices higher through leveraged speculation.  This may also renew the appetite from Asian buyers for physical bullion as the low prices have turned from a positive to a perceived negative as of late.

Central bank intervention for profit retention?

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Today we read about Kweku Adoboli, the UBS equities trader that allegedly went rogue and lost the firm $2B in Q3 profits.  We also learned about the ECB effectively using extraordinary measures to prop up insolvent EU banks.  A rumor also floated through the blogosphere that Mr. Adoboli was shorting large amounts of precious metals, specifically silver, through ETFs.  What one has to wonder, given the timing of these events and the downdraft in metals prices today, is if the ECB and/or SNB is helping to support UBS by pushing down metals prices so they can exit the short position with less of a loss to report on their upcoming earnings announcement.

This sounds like a conspiracy theory, right?  I would have thought so, too, many years ago.  However, given the recent and direct Swiss central bank intervention in the Franc and precious metals markets, the dire situation in the EU threatening the monetary union and its currency was well as the threat of a global double dip recession, it seems more than possible that central banks are beginning to exercise their power in the precious metals markets more overtly.

Psychologically its a very effective technique.  Hit metals hard on days that they would ordinarily rally to push weak (see leveraged) hands out of the market.  Try to inflict as much technical damage as possible (although at this point no severe damage has been inflicted but if this continues it will be).

The question is how long could such manipulation last, if that is in fact whats going on here?  I would personally doubt that such interventions can have staying power at least not yet.  The SNB hit on precious metals did not last very long, and when priced in Francs gold rallied to a record high.  The previous sell-offs weve seen have produced a large amount of buying appetite around $39.00.

Today that seemed to be the case.  I was buying some silver CEFs (closed end funds) when the price hit $39.49.  I felt that a lot of buyers would begin to bite with more conviction as that has been the bottom end of the technical trading ranging silver has been within for the past few weeks.

There is some chance it could break down to $36.00, of course, but with a stop around $38.75, Ill take a small downside risk given that the upside potential seems to be  about 33% in the short to intermediate term.  Good luck investing and trading, everyone.  And be careful out there.  The sharks are circling.

The great rotation from gold to silver

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With gold pushing all time highs on a near daily basis, far exceeding its inflation adjusted highs from prior decades and pushing through several technical overbought indicators, many are concerned a correction is looming from this recent parabolic move, where gold went from the $1500s in July to $1890.00 today in late August.

Meanwhile, silver has underperformed after the correction from the peak at $50.00 yet silvers fundamentals look even more promising. While all the gold thats ever been mined and produced is still above ground and available, silver is consumed as an industrial metal, and most of that usage is not recoverable or recyclable. Silver is also more difficult to extract. There are not many dedicated silver mines out there, instead silver tends to be a byproduct of other precious metals mining. In addition, silver is the best conductor of heat and electricity of any element, it is widely used for communications, medical devices, technology and military equipment.

The most interesting aspect of silver, however, is its historical ratio of 16:1. For this ratio to be achieved at todays prices, silver would have to hit $115.00/oz, yet it currently trades around $43.50. This could be a golden opportunity to rotate out of gold in to silver and see faster asset appreciation during a time when all signs point to the rally in gold moderating, but silver having tremendous upside potential. Many wise and experienced precious metals investors, including the legendary Eric Sprott, are moving cash out of gold and in to silver to position for this change in the precious metals dynamic.

Having just taken out major technical resistance at $41-42.00/oz, silver is poised to move towards the next major level at $50.00. Many predict silver could reach $75.00 by the end of this year on investment demand to hedge against inflation and monetary uncertainty in the US, Europe, Japan and beyond. I have long been an advocate of buying silver to protect ones purchasing power and once again I am stating that for my investments I am continuing to buy silver funds as well as silver mining and channeling equities.

Remember that every investment strategy carries risk, and that one could potentially lose their principle if the investment strategy fails but also remember that paper assets have a long history of catastrophic failure. Whatever path you choose, I wish you and yours the best of luck in the coming financial storm.

Precious metals outlook and thoughts

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After the violent price swings weve seen in silver and the correction in gold, I remain cautiously optimistic that the precious metals sector is now in a bottoming phase and that the nominal paper values disconnect between physical values indicates that real world demand is still far beyond what virtual markets indicate. Spot prices of rounds, bars and bullion are about $4-6/oz for silver above the spot paper price. This disconnect is the result of price manipulation and will likely correct in the favor of physical prices being the real gauge of value. Silver prices of $50.00 an ounce and gold prices of $1800.00 an ounce by late summer are not out of the question.

Traditionally around central bank meetings metals prices and miners take a hit. This has been a trend for several years and can provide an excellent buying opportunity. In addition there are seasonal factors. Summers are often volatile and illiquid, leading to wider, but generally less significant movements in the gold and silver markets as well. Sometimes these swings bring about arbitraging or purchasing opportunities of precious metals stocks or physical metals funds.

Whispers of Q3, persistently high unemployment, asset disinflation, Bernankes legacy and Obamas electoral hopes all speak to the notion of further easing coming later this year. It could indeed be a bumpy ride, but lets not forget that metals are priced in dollars and the dollar has been and continues to be in a long term structural and fundamental decline due to loose monetary policy, debt-driven government spending and a tendency to inflate to cover tax shortfalls, rather than raise taxes or cut spending and that trend does not appear to have an end in sight.

We may see volatility, we may see market dislocations, but at the end of the day I feel as though owning gold and silver positions one appropriately for the two possible scenarios we see moving forward. Either there will be a extremely sharp depression or a bout of severe stagflation. Either way a loss of confidence in the currency and financial system is inevitable and forthcoming. When that day comes the oldest form of money known to man should reign supreme once more as the remonetization of gold and silver continues, perhaps at an even faster pace.

We are essentially in a war right now. The war is between the 40 year failed experiment of fiat currency backed by nothing but faith and sound money that the world has run on for 5,000 years of human history. I feel as though investing in gold and silver puts one on the right side of that war. Indeed, many battles so far have been waged successfully and the Wall Street bankers, whose stocks have been underperforming the market and indicating a significant solvency problem, are on the run, retreating because they are aware that the ponzi scheme they rely on is in its initial stages of collapse.

Remember that no investment path is straightforward, many carry the risk of loss, some even greater than the principal investment involved. Please ensure whatever investment decisions you make suit your plan for retirement, savings and are appropriate for the level of risk you are comfortable undertaking and always, always, always do your homework. Best of luck to everyone!

Disclosure: Long precious metals funds and miners.

Silver poised to make a move to $50 an ounce

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Silvers uptrend has been nothing short of astounding. The precious metal has more than doubled in the last year, and yet the rally seems to continue unabated, supported by fantastic fundamentals. The industrial and investment demand for silver products continues as the global above ground supply diminishes.

In the near term, based off of technical and fundamental (demand) analysis, it looks like the metal will regain the inflation adjusted Hunt Brothers high of about $50+ per ounce reached in the 1970s. Some go as far as to speculate that silver could return to a 17:1 traditional silver to gold ratio over time. With gold projected to hit about $2,000 an ounce, silver, assuming this ratio comes to fruition over the next several years, could hit about $120 per ounce.

Another factor that is contributing to demand of the white metal is inflation that seems to be percolating through global markets at an ever increasing pace. West Texas intermediate light sweet crude is now solidly above $100 per barrel, grain prices have made significant gains, other industrial metals such as copper, aluminum, nickel and zinc are staging impressive rallies and the value of the US dollar when compared against other currencies continues to diminish at a rapid rate.

Many savvy investors say the best way to own silver is through mining stocks or through buying physical bullion. There are a myriad of players in the silver mining industry, so if you are interested, do your homework on the fundamentals, their management and the chart of the company in question. If instead youre interested in buying the metal itself, make sure you find a reputable dealer with prices that arent too much above the bid/ask spread.

If silver triples in price over the next several years, that could mean that todays prices are a bargain the likes of which we rarely ever see in the investment world.

(Disclosure: The authors family currently holds some positions in precious metals ETFs and silver mining companies. The author may buy positions in precious metals ETFs and silver mining companies.)

Gold to $1000?

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The action in precious metals lately has been impressive.  Silver and gold caught a bid amidst the chaos in currency markets and bank balance sheets.  The nervousness has created an atmosphere of fleeing away from equity in to safer havens.  With gold seemingly gaining steam to make another move to the upside, is $1000 within sight?

Looking ahead

Markets tend to discount the here and now and focus on the future.  Has gold already priced in potential inflation or is that a variable being gauged on a daily basis?  Options traders in GLD would suggest that $95 to $100 (or around 950-1000/oz) are reasonable price targets given their usually large call positions.

Charting the course

Right now $1000 is resistance long term, without some extraordinary volatility to the upside.  Below is a three year, weekly chart of GLD.  The bollinger bands are a great indication of potential support and resistance in price moves.  Were using a longer term chart to get a very broad view of GLDs price action over the last 150 weeks.

Past performance

While past performance is no indication of future gains, GLD has outperformed the SPY (S&P 500) consistently for quite some time.  Gold has always provided a safe haven for value.  For thousands of years, gold has had the same purchasing power.

It is wise for investors with long term objectives to have some precious metals exposure in any portfolio as a hedge against inflation, which is expected to increase significantly in time.  Traders may want to be more aggressive playing the rally depending on your strategy.