Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Are Gold and Silver Both Ready For Their Next Substantial Upleg?

Commodities / Gold & Silver 2009 Jul 06, 2009 - 12:50 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleI like gold and the whole precious metals market which is why I follow it, invest in it and base my professional life around it. Warren Buffet, one of the world’s savviest investors, doesn’t like gold at all. He doesn’t believe in it. In fact, in a speech he gave at Harvard University in 1998 this is what he had to say about gold:


It gets dug out of the ground in Africa or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it.

As an investor Warren Buffet is in a class all of his own. There is a reason why he is called the Oracle from Omaha. However, when it comes to gold, perhaps he has missed the point. Gold doesn’t generate dividends like the stocks that Buffet favors. However, gold has a role in balancing a portfolio and hedging against the worst of times, like the recent global financial meltdown we have witnessed. For those fortunate to have had it in their portfolio, gold helped preserve wealth that would have otherwise been eroded.

In his last shareholders’ meeting Buffet gave some good news about gold, although indirectly. He warned his investors about inflation and predicted that the dollar would be heading down. Both of those are positive indications for gold.

Precious metals tend to appreciate during inflationary periods (under the current financial system) and outperform other assets; therefore, this chart is very bullish for gold and silver. Most likely, even Warren Buffet would agree.

Gold

As indicated last week, the situation in the gold market has developed similarly to the scenario at the end of April when I wrote the following:

As you can see, the areas marked with blue rectangles look alike. Generally, it is common to see certain patterns on a particular market repeat themselves in a different scale (the so called fractal nature of markets.) This may be the case here.

The price action that followed has been remarkably in tune with what happened previously in the marked time frame. Please take a look at the chart (charts courtesy of http://stockcharts.com) below.

After publishing last week’s essay, we have seen gold go lower, bounce, and move lower again. This is also what happened in the end of April. The implications are positive for gold, because in the past the analogical price action marked the beginning of the new upleg. As always, caution is necessary because there are no sure bets in any market. However, the odds favor higher prices in the short term.

Silver

Silver’s performance has been far from stellar, disappointing those who included the white metal in their portfolios in hopes of higher rates of return. The good news is that silver tends (general tendency of silver) to underperform gold during the initial phase of a rally, and vastly outperform it during the late stage, more than making up for the initial lagging. In other words, silver’s underperformance to gold is nothing to worry about, as we are still in the early part of the second stage of the bull market. On the contrary - we should expect it. Assuming that the major bottom for the precious metals sector is already in place (during the last months of the previous year) and we are still below the previous high (substantially below it, in case of silver), we may infer that the following rally will be accompanied by a massive silver catch up. How can I be so sure that we will eventually rally, and most likely, soon? Because of the favorable fundamentals that determine the market’s long-term direction.

The silver catch up to gold has been visible several times in the past during this bull market. Please compare the following charts for details.

Clearly, in most cases, the final stage of the massive upswing was characterized by an even bigger rally in silver. Since we are not in the final stages of an upleg, but rather at its beginning, silver’s underperformance may be viewed as normal and should not overly concern you.

However, due to silver’s large (and growing) amount of industrial applications, it is correlated with the general stock market to a much greater extent than gold. Don’t forget that silver is both a precious metal and an inexpensive industrial commodity. While Warren Buffet is right that gold is hoarded and “we pay people to stand around guarding it,“ silver is consumed in industrial applications at a frantic pace. (While all the gold ever mined is basically still around in one form or another, that is not true for silver. It gets consumed. Like gold, silver has a finite supply. There is only so much of it under ground, and we use it up faster than we can replace it.) 

While correlation coefficients are based on the average values (they tell you what happens on average), the same silver-stocks link is also visible during particularly violent price swings. By that I mean last year‘s plunge in the general stock market and the corresponding massive drop in the value of silver. Gold declined as well, but silver’s fall was much more painful. The point is that if the values of main stock indices move sharply lower, silver may temporarily follow them. If this were to happen, it will most likely be temporary and should not concern long-term investors who hold silver.

Summing up, silver seems to be a great buy today with the medium- and long-term in mind. However, the short-term situation is somewhat unclear.

Summary

The outlook for the precious metals sector remains bullish. We have seen several confirmation signals that the bottom is in, so it seems that this week’s price action is a consolidation during an upswing. put the pressure on the precious metals market. Silver has been disappointing lately, but that is within the historical norms and should not cause worry at this point. The situation in the general stock market is now rather bearish, which may be a factor here, but I will leave this part of the commentary for my Premium Subscribers.

To make sure that you get immediate access to my thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

    P. Radomski
    Editor
    Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw RadomskiArchive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in