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Monday, January 19, 2015

Gold's Wild Ride: Trend or Dead Cat Bounce?

 We're doing a lot of head-scratching - and fielding TONS of phone calls - in our precious metals shop over this recent surge in gold prices.  Since the close of business on January 2 (the first full day of trading this year), gold has surged $100 an ounce in a bit over two weeks (from $1172 on 1/2/15 to $1273 on 1/19/15).

On a percentage gain, silver has actually outperformed gold in this same time frame (8.6% for gold and 12.4% for silver).

Will it last?  Is this just a "dead cat bounce" and the market will crash again?  Are better days ahead for gold and silver?  Should I buy?  Should I sell?

I wish I knew.

The paper precious metals markets - shorts, longs, etc. - are wildly manipulated.  Last I saw, for every 1 ounce of physical silver, there were 92 paper contracts. 

In other words, if less than 1% of the paper contracts were held and demanded physical delivery, the silver commodity market would go up in a mushroom cloud.  The physical silver just isn't there to fill the contracts!

Here's what I do know - 

So what does this all mean? 

The governments of the world are on a tear to devalue their currencies, while at the same time, they are buying up gold like there's no tomorrow.

Their actions are screaming, "FIAT CURRENCY IS WORTHLESS!" and are buying the tangible assets.

Here in the US - at least for the time being - we've stopped our dollar-devaluing Quantitative Easing program, so the dollar should get stronger against the currencies of the world.  "Should" being the operative word.

Technically, that would force down the price of precious metals here in the US (since the dollar and precious metals generally go in opposite directions).

At least at this minute - despite all of these currency wars - the world seems to be regaining some sanity, with the price of precious metals going in the right direction, and getting closer to reflecting true market conditions (although it still has a LONG way to go, IMO).

So, I'll tell you what I've been telling my customers and callers:  I buy precious metals every month.  Some months, more than others.

I'm looking to buy some real estate in the medium-term future, and will definitely be selling some to finance the purchase.  As that time nears, I'll stick my finger in the wind, see which way it's blowing, and make my decision based upon the trends at the time.

If I personally needed cash within the next month, I'd probably be selling right now.  This recent upward trend may continue, but it may not.  I'd be banking the $100 per ounce jump we just got.  When you get greedy waiting for more "upside", you tend to get burned.

I am in PMs for the long haul. Market forces have always corrected manipulated markets in the past.  It will happen again.

I just don't know when.  No one does for sure.

Clear as mud, huh?

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Copyright 2015 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.

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