Precious Metal bulls will tell you to buy the dips. This means, wait for the price to temporarily deflate, and then purchase your position. It is a way to maximize dollars for gold and silver purchased while maintaining a steady buying program in that metal. The same concept could be used for any fund or stock, as well.
This morning I woke to find gold and silver had tumbled. This doesn't surprise me anymore because gold and silver have become hotter markets, and there will be more speculation in them. As I wrote in Mr. Market Speaks: Flight to Safety, the market is slowing moving away from long term debt, looking for safety of principal and inflation protection. Gold and silver markets have benefited from this movement.
Gold has steadily been moving relatively sideways the last two days, as seen in the following Kitco chart. But also notice the sharp drop off on Jan 20th at approximately 8am.
Silver looked exactly the same. The sharp downward move happened about the same time.
So I took a look at a 5 minute gold chart and found a 15 minute sharp drop, which I circled in red.
And silver 5 minute chart, circled in blue.
I have written before about how sharp, quick movements in liquid markets don't signal normal price action. Even on bad news, liquid markets take time to react and respond because they are traded by people. And people take time to make decisions on the overall balance of the news in a given market in a given time frame.
So I decided to take a look at what the news was in the precious metals market. CNBC didn't have much.
On gold, Bloomberg Businessweek had a piece on everyone getting out of gold. Definitely bearish. The Street agreed with that assessment, commenting that interest rate hikes in Brazil and buying of US Dollars weakened gold demand domestically. But the article also notes that China continues to buy gold in Brazil. The Wall Street Journal reports gold weakness on improving economic conditions.
Bloomberg had a piece about silver profit taking potentially lowering silver 20%. Definitely bearish and timely. I also found an article from FMX Connect on silver, discussing reasons for silver contango yesterday.
The two main reasons FMX outlines for this movement in silver would either be an interest rate move (none) or metals delivery issues. If metals delivery issues, then this is bullish for silver (and potentially gold) as a complementary inflation-protection investment.
Ben Davies has commented before on a coming short squeeze in the gold and silver markets. So has Ted Butler. And Robert Lenzner. Is it finally time, or is it profit taking in the silver market that has been hovering around for a while?
On the whole, it sounds like there is bearish sentiment and bullish sentiment on gold and silver, which sounds like a perfectly normal market condition. That is why the sharp price movements over very small time frames, as noted in the charts above, is disturbing. Even if a large share of the market decided to take profits and sell, it is not likely to have happened within a 15 minute window at 8am in the morning. This smells of market manipulation to me.
On balance, I remain bullish on gold and silver. I don't buy paper versions of these investments as I think those markets are fractional reserved upon meager physical metal backing. I recommend investing in the physical metals. And the current price action sounds like a perfect opportunity to purchase gold and silver on the cheap.
I will continue to follow gold and silver news and vette it out in a reasonable manner. If the markets turn bearish upon a real economic recovery, then I may change my position. And I will write about it when I do. But for now, I am not buying the gold and silver markets top story. I think we are firmly going the other direction, regardless of what this morning's price activity is saying.
Disclosure:
To be up front, I am known to be a precious metals bull or bug or whatever term you wish to use. I have written a 5-part series on Seeking Alpha regarding precious metals market manipulation. I have written about state proposals to adopt a gold standard for Financial Sense. I favor an honest money system and an end to the central banking model, which I spend quite a bit of time writing about on my personal blog.
