GoldSilver.com - Buy Gold & Silver

Gold/Silver Update

10-12-2011

Looks like on September 26, 2011 we hit an Intra-Day trading low of $1537'ish but closed above $1600. With the big fall from over $1900 we have seen approximately a 15% decline in the price of the metal. Most of this decline was the result of two primary factors. First, was the massive sell-off in equities causing Hedge Funds to get margin calls. These margin calls, forced the Hedge Funds to sell their profitable assets (metals) in order to cover loses in equities. Second, we had the exchanges governing boards raise margin requirements for Gold. Just like when Silver was at $49 an ounce and the margin requirements were raised three times in a row, we have the same thing happening now that Gold is reaching for new all-time highs.

I would suspect that we will see a new firm foundational base setup here at the $1600-$1700 level and would expect to see us reaching for $2000 by Spring 2012. I don't think we will see a massive breakout in Gold before then, simply because the bleak holiday season news will keep the prices contained.

WAIT! What? Bleak holiday season news? Wouldn't that cause the metals to rise?

It would if anyone had any money to spend. Even though the Federal Reserve is pushing in massive quantities of dollars into the system, the dollars are not flowing into the economy. Do you realize how hard it is to borrow money right now? Pretty easy to buy a car, but to buy a house... Hmmmm. Don't think so.

Feint Three, (yes, I am referring to QE3, Twist 2, whatever you want to call it) is pretty much working to lower long-term interest rates and increase short-term interest rates. This is simply accomplished by rolling all maturing debt that was short-term based bought in QE1 and QE2 and re-investing it into longer term maturities, in this case 10 year and 30 year bonds.

Remember, when there are lots of people buying prices rise which for bonds presses down interest rates. When there are no buyers prices must decline in order to attract buyers which forces interest rates up. Therefore, by the Fed not buying short-term maturities anymore, prices will decline forcing interest rates up in these markets. Since the Fed is buying longer term maturities they are stimulating a false demand, but demand nonetheless, which causes prices to increase and interest rates to fall.

While I believe there is still some weakness in the markets and Gold could still fall down to around $1250 (which we would not take us out of the current Bull trend), I think we will have a solid base formed here at $1600. I am looking for upward movement over $1875 to confirm entry into our next leg up. I think I have said it before, but it is worth repeating, in my opinion I would rather see a good Stairstep rise in prices than a vertical rise or quick run-ups with partial give backs. The run-up to $1900 was a little too quick and that is why we came back to $1600. Even though we had already established the step at $1600-$1700 once before, this past pullback gave up all of the gains due to the above mentioned reasons.

Silver on the other hand has retreated to it's firm base at the $28-$30 range. We spent nearly five months in this range back at the end of last year beginning of this year. I think we will spend the next five months stuck here again. Trading in Silver should stay within a range of $25 to $35 with the majority of the range being $28 to $33.

If you are wanting to gamble in Silver then a good strategy would be to Buy $30 Call Options on SLV (Silver ETF) any time the price is down around or below $28. Sell the Options when the prices is at or above $33 and buy $30 Put Options which will be liquidated when the price falls back to the $28 area. Rinse and Repeat. You should be able to get at least 3-4 trades in the next five months, before we could see a new run to the upside.

All of this is barring any unforeseen world events. Remember we still have the PIIGS stewing and that pot is heading for a boiling point. Even though on the surface everything appears to be working out, I think we are going to see more major changes in Europe, which can be a game changer in all aspects of current trends and cycles.

Hope this helps and as always our Standard Disclaimer applies.

Take care,

Mother