Gold and Silver Defy The Selling Season
Posted on: May 20, 2009 - Email Article - Printable Version
We’ve passed the midpoint in May and gold closed above $930 on Friday May 15th. This could be hugely significant and should give all prudent investors pause for thought.
Allow me to share with you an email message I sent to my family today that focuses in on my concerns on this topic. Although this will not be a long article, it is intended to motivate us to think “outside the box” as we slide into the “Sell in May and go away” time of the year. Here’s what I wrote my family today:
“Realizing it is only the middle of May, it might be too early to say “it’s going to be different this year”
when it comes to gold and silver.
“During the past seven years gold and silver always corrected between May and October, sometimes just
a little and sometimes a lot. So I’m suspicious that it hasn’t made some meaningful downside move yet, but I don’t want to be clue-less either.
“Notice the comments from Casey Research which I received today. It addresses the tension and the high level of uncertainty that is floating out there in the world of investing, especially in the precious metals arena.
“It was a second straight day of minor change for the precious metals (Friday), with silver and platinum submitting losses, while gold somehow managed to eke out a modest finish in the green.
“However, gold aficionados had to be satisfied with the results, given that the usual suspects were lined up in opposition, with oil selling off and the dollar moving strongly against the euro. Gold likely got a lift from declining equities.
“For gold and silver, we are going into a win-win situation,” said Ashraf Laidi, the chief market strategist at CMC Markets in London. “When we will have a retreat in the financials and the rest of the stocks, we will have some rotation into metals.”
“In addition, “The core inflation number helped stabilize gold and helped gold up $930,” said George Gero, of RBC Capital Markets.
“That could be meaningful heading into next week, according to Ralph Preston, of Heritage West Futures in San Diego, who predicted that, “A close above $930 could be explosive.”
“Yet more positive statements came from Tom Pawlicki, of MF Global, who noted that, “Gold has been the object of affection for hedge funds and also has paid increasing attention to the dollar lately … That helps explain why gold has rallied both when stocks have risen and fallen.”
“If the funds are moving back into the yellow metal, that bodes very well indeed.”
I was looking at the 6 month technical chart on the Gold ETF [GLD: 109.718, -0.162 (-0.15%)], especially the 50 and 100 day moving averages. Perhaps we’ve already missed the correction, or it happened early this year (notice the downward move that occurred in the beginning of April and has slowly righted itself upward).
It is too early to say that the upside reversal that began at the start of May is going to bring us an “explosive” upward move from here. The message from the major gold mining stocks has been mixed at best.
Companies like Barrick Gold [ABX: 39.54, -0.14 (-0.35%)] and Goldcorp [GG: 40.44, +0.33 (+0.82%)] seemed to have topped out over the past few days and corrected on Friday. Others like Newmont Mining [NEM: 51.17, +0.11 (+0.22%)] are acting more ebullient, but it also started seeing selling on Friday (on lower than average volume which might be another positive).
BOTTOM LINE: This year it actually could be different. There are some very sobering pieces of economic reality that are hanging over the stock market’s (and bond market’s) head such as the horrendous problem with the Credit Default Swaps (super derivatives) market, the little-publicized debacle with the Commercial real estate sector, and the impending collapse of some good-sized banks that people aren’t expecting.
Any or all of these impending and relatively under-anticipated financial nightmares could suddenly cause gold, and perhaps silver also, to take off like an Atlas rocket. Remember, the rush to gold as a hedge against economic “shock-and-awe” can happen faster than we can anticipate or respond to.
“It’s the pit bull-dog you don’t see that bites you, not the one you see” said one trader years ago. Let’s make sure we have enough exposure to gold and silver to benefit just in case it is different this year and just in case the “worst case scenario” becomes our “real world reality”.
How’s your supply of The Central Fund of Canada [CEF: 13.99, -0.03 (-0.21%)], ASA Limited [ASA: 74.59, -0.48 (-0.64%)] which pays a small dividend and the Silver ETF [SLV: 16.92, +0.03 (+0.18%)]? Can a smart investor afford to have too little of such investments (although the answer may be “yes” if you own enough of the physical metals and if you have them safely stored).
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.
Disclosure: This article was taken with permission from Check the Markets. The author is long CEF, ASA, SLV, and GLD. Further questions on disclosure should be referred to the original author.
The Following Stocks Were Mentioned In This Article: ABX, ASA, CEF, GG, NEM, SLV
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