Too Much Caution

Firstly, I would like to reflect on my March-April 2008 trade. I didn’t. I was advised and warned of a possible downturn, and even had a strong hunch about it myself. But I didn’t sell. I can’t.

You see, many traders trade based on speculation – what they feel or “instinctively” know will happen. Many times this is ill-advised, many times profitable. But one thing I’ve come to realize over the years is that those who win in the long run are those who follow through on the most logical of instances.

In March we saw a clash of two opposing forces: Fundamentals and Technicals. When the charts say sell, the chances are you probably should. But this is not always a winning strategy. I told a friend of mine like this.

I don’t buy into rallies. I followed Gold down from its 2006 peak and only afterwards did I buy. I may be one of the only ones who can say they bought silver in single digits!

If the price did end up falling, then I would consider myself a quasi-hero. I say ‘quasi’ because I would still need to buy back in! Furthermore, let us say that prices went up! Now I’m screwed. When do I buy back in? What if the next downturn only takes Gold down to $1,250? (Not to mention the bumb of sitting out as the price soars to over $2000). That’s a REAL loss of 20% – as oppose to a current PAPER loss of only 20%!

Now let me ask you as an intelligent investor, worst case scenario, would you rather be holding a PAPER loss of 20% or a REAL loss of 20%?

That said, it seems that ultimately (this means the long run) gold will find its footing and turn even those who bought as the tippy top back in March into profiteers. I can now say that all the winds are at our backs, and that the move higher will certainly be nothing less than extraordinary (coming from such low levels).

Fundamentals: If these were strong in March – when the silver shortage actually started becoming apparent – how much more so now.

Technicals: Even the most bearish or bears would have to admit that the charts look phenomenally strong and will sparkle as soon as we have a significant up-tick.

Sentiment: (and in it the pudding!) We like to trade sentiment inversely. We like to Buy the “Wall of Worry”, and Sell the “Slope of Hope”. When investors are cautious (as now) it signifies a rally in the making. Likewise, when investors are in anticipation and giddy to the point of bordering on euphoric, we like to sell (or at least get ready to).

I haven’t seen too many analysts who are bullish on the precious metals give any support without offering a few “wise” words of caution: “Gold may still drop to $600” “We may see a decline of 50% like we did in the 70s”. I doubt we’ll see 700.

As per the down 50% comment: Gold rallied from 35 to over 200 by 1974, and investors were excited. The Dow was down almost 45% and inflation was roaring, as were interest rates. Conversely, today we are far from that. Gold would have to rally to 2300 before it rose as it did then, the Dow would fall to below 8000, and interest rates would need to rise to about 8%!

I think that Gold will see an intermediate top, followed by a gut wrenching 50% decline (you were just warned). But that time seems months, of not years into the future. Today, skeptics are rampant and people are still expecting their houses to rise this year!

Hold tight! And Buy like you can’t buy again! Because you won’t be able to at these prices.


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