Silver and Gold Fall from Favor

It seems many main stream commentators from the financial channels have abandoned the precious? Rather than beating the drum that gold is over $1000 per ounce we hear that gold is in a bubble.

In these uncertain financial times selling precious metals may look wise in the short term but what investment class is doing better? It appears the U.S. dollar is going to swim against the main downward forces and stage a counter trend rally through perhaps the summer and that may just be the opportunity that savvy precious metals investors are looking for to accumulate.

Certainly, this writer is in the camp that all markets go up and down and within the major trend we can see some sell-offs perhaps this summer. In an earlier of The Morgan Report (TMR) I wrote:

"Silver and gold have risen without much pause from the 2008 washout bottom that scared many investors out of the metals unfortunately.  It would not surprise me to see a correction beginning now. That in fact would be in the normal behavior, because the people getting in right now have missed a move in silver from the $9 level to the $19 level, and any significant weakness might just shake them out of the market. In other words, the people who waited to buy until just recently might just panic and sell. That's normal too.

The precious metals markets may need to take a rest, and after this final flurry of activity, we might see some downside pressure due to less buying during the summer months, especially if the Euro problem appears to be resolved. Let's be realistic and see how the market develops over the next few months. There may be some good opportunities to come, and remaining calm may be a good strategy. I'm still focusing on the metals markets to see how far down this correction goes and how long it takes.

However, we need to be clear that this correction could be very short. If the gold and silver prices start to go back and then go above $1,200 and $20, then it would be a testament to just how astoundingly strong the metals bull market is."

Over the past few trading sessions we have seen gold and silver give technical clues that expecting lower prices on an intermediate term basis is the most likely case. This does not mean you should turn bearish on a long-term basis only look at current weakness as an opportunity to buy or add to your holdings. Be patient and ask yourself what asset class is performing better than the commodity sector? Housing, the Dow, Money Markets, or antique automobiles? Knowing the sector got over heated for a short time is far different than thinking it was a bubble and the bubble has burst!

Normally during a long-term bull market, it would be completely natural for gold and silver to be correcting after a run up like we just experienced. With the technical picture having been damaged to the extent we discussed, gold could go as lower and this would not worry me, I have been through this type of market sentiment before.

My point is that we may experience a tough summer once again, but in a bull market most surprises are to the upside not the downside. As more and more former gold bugs abandon ship, and the sentiment gets very poor you can rest assured the bottom has arrived. Then the precious metals continue to ascend the wall of worry.

David Morgan

Mr. Morgan has followed the silver and gold market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.

You can get his Ten Rules of Silver Investing — click here