Why Gold May Head Lower

Francois Soto from EMphase Finance shows us how true downside exists for gold.

  • There is a psychological resistance at $700.
  • The current trend is down and is likely to continue.
  • Gold is well above its technical trend lines that began in 2001.
  • The metal may fall to as much as $500 or even $400 ($8-10 Silver).
  • Fundamentals support this as many large traders may remain patient.

Why We Don’t Care

This is what I like to see, primarily because many have come to speculate, albeit short-term on the Precious Metals and even those who haven’t yet definitely have considered it since last May. Thus two scenarios seem in the cards right now.

1. A stagnant calm that should last at least until September, with gold trading between 550-700. This will once again create a strong psychological resistance level causing many trader’s sentiment to level as well.

2. A Trend Break sending gold well below many traders comfort level, an even greater scenario allowing us to buy gold at unbelievable bargain prices (similar to those in late May after the great sell-off) and it will bring out the bears, something every contrarian wants to see.

In either case we will be faced with both a buying opportunity and a general sentiment that will favor long-term investors, chasing out the speculators.

As a matter if fact… We Love It!

We are young investors who don’t care a bit about the short-term and are looking for things that will make us wealthy 10, 20 or even 50 years from now. If you’re an aging retiree you may want to stick to dividend and interest yielding assets, but if you have time to stick around and are still earning money to invest then you want to buy what will appreciate over time.

Stocks and Real Estate (and the Dollar mind you) are all gone, at least for the next few years. And that’s why commodities (and gold) are in.

We are in the process of a necessary correction. But who will be among the buyers after such a decline? IMHO this may include many very large traders sending billions (even trillions) of dollars into gold. This will take gold well into the four-digits and possibly into the fives (yes, the fives. Ever considered $10,000 gold?).

  • Massive shorts exist that will need to be covered. This amounts to hundreds of millions of ounces of gold and silver that will need to be bought up and returned.
  • Central Banks that are more than eager to increase their gold holdings. Countries like China, India, Russia even the U.S. may seize the opportunity.
  • Warren Buffett also comes to mind. He has over the many years claimed his lore for silver in particular. He bought a major holding in 1997 which many speculate has either been sold or leased out (and sold). If his conscious is stirred we may again see Silver in the Berkshire Hathaway holdings, which the sight alone may attract millions into the market.

We won’t know when this is to begin (any of the above can buy tomorrow) or how strong it will be (ever considered a day when markets closed due to daily caps), but when it does, traders from all walks of life eager for some return will come flourishing back into the market.

As Jim Rogers said “Corrections go down long enough to scare everybody out and make sure they give up, and then they turn around. We are in a secular bull market for commodities which has another decade or two to go.”

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