Buy Now or Wait?

September 17, 2009

Timothy Silvers

          A subscriber sent me the following email which warrants a detailed reply:

On September 13, 2009, you wrote an article saying that "if gold manages to break out over $1010, then we would likely see gains of $100 to $200 an ounce within the next few months".

Now gold has shot pass $1010, and now quoted as $1022. Don't you think it is time to advise your readers to get back in before it reaches $1200 as US dollar continues to weaken?

Even though all indicators say that it is overbought, given the weakening situation of the US dollar, gold might become even more overbought until it reaches $1200 before we see any significant correction?

          I am not advising that most investors buy gold and silver at these levels because it is not part of my strategy to buy at overbought levels hoping for more overbought levels. First of all, gold needs to maintain levels over $1010 for several trading days. If it can close above this level again Friday, then it is more likely we will see more short term gains. However, I don’t think this rally is based on fundamentals, rather it is being fueled by speculative trend-following traders and commodity funds. The herd mentality is running the markets now, precious metals included.

          I read many articles mentioning that September is the best month of the year for gold. Once traders latched onto that idea and momentum got established, it became a self fulfilling prophecy. As a counter argument to that, keep in mind that October is historically the worst month for the stock market, and the metals and stocks have been positively correlated lately. I expect stock market weakness to develop soon, likely with some negative earnings surprises in early October. This will not be good for the metals.

          In my analysis I try to pay more attention to macroeconomic trends and investor sentiment than various charting techniques. When investors get too bullish, I get cautious. However, it doesn’t pay to stand in front of the freight train. I mentioned that gold could go up $100-200 because popular sentiment appears to be focusing on the $1100 to $1200 range. If enough people believe that gold will continue to go up, then they will keep buying until the rally exhausts itself. It is not certain we will reach these levels, but they are possible if speculators get carried away before the rally fades.

          One reason I started writing articles about gold and silver is that it helps me to solidify the logic I use to make investing decisions. Knowing that there are a few thousand knowledgeable investors reading my articles keeps me from making impulsive, emotional decisions. I have received some criticism that I wasn’t more aggressively recommending my readers to buy into the current rally. I am not a day trader and I don’t use a lot of leverage so my strategy will not fit everyone. My goal is to identify low risk buy points and high price levels where taking profits and protecting gains would be a good option. In hindsight, I should have bought into the current rally on August 28 when silver broke through its 20 day moving average and closed up about $.50. I didn’t buy then because I didn’t think the rally would go much higher before succumbing to seasonal weakness. Sometimes the market proves us wrong. I would rather miss out on some potential gains than get into a position at the wrong time and end up eating a big loss. Each person has to make their own decision about what level of risk they are willing to take relative to the potential gains.

Summary

          I won’t chase this rally because I really can’t predict when it will end or how much gains are left to be had. I may buy into this rally if we have a pullback to a more neutral RSI level and gold and silver find support there. However, at some point we will likely see a sharp correction, so I think there will be opportunity to buy gold and silver at much more favorable prices sometime in the next few months. We will have to be patient and adjust to the opportunities presented by the market.

Best wishes on your investing and future and God Bless,

Timothy Silvers

www.silverbrothers.com

www.numisnetwork.com/silverbrothers

 

Disclaimer: This article represents the opinions and personal views of Timothy Silvers and is not intended to be investment advice. If you choose to use this analysis for your personal trading, Timothy Silvers assumes no liability for the direct or indirect losses you may incur due to using this article to make your investment decisions. You are totally and completely responsible for your own investments. At any given time, Timothy Silvers or his friends and relatives may have positions in silver related investments that may or may not follow the recommendations contained in this article. The information in this article may not be completely correct and accurate. Even though Timothy Silvers has done his best to review the content and accuracy of this article, he is in no way liable or responsible for any mistakes or omissions.