Silver and Gold Fall From Favor

By: David Morgan | Fri, Apr 25, 2008
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It seems many once notable gold and silver bugs have abandoned the precious for what? In these uncertain financial times selling precious metals may look wise in the short term but what investment class is doing better? It appears the U.S. dollar is going to swim against the main downward forces and stage a counter trend rally through perhaps the summer and that may just be the opportunity that savvy precious metals investors are looking for to accumulate.

Certainly, this writer is in the camp that all markets go up and down and within the major trend we can see some rather vicious sell-offs in the April issue of The Morgan Report (TMR) I wrote:

"Silver and gold have risen without much pause over these past six months or so. It would not surprise me to see a correction beginning now that may be long and have wild swings. That in fact would be in the normal behavior, because the people getting in right now are somewhat "late" to the party, and any significant weakness might just shake them out of the market. In other words, the people who waited to buy until just recently will panic and sell. That's normal too.

The precious metals markets need to have a rest, and after this final flurry of activity, we might see more downside pressure due to less buying and perhaps the U.S. Mint catching up with the demand for Silver Eagles. Let's be realistic and see how the market develops over the next few months. There may be some good opportunities to come, and remaining calm may be a good strategy. I'm still focusing on the metals markets to see how far down this correction goes and how long it takes. It could well take the market down by 25% and endure for six months. As subscribers know, the "sell the first of May and go away" adage might apply.

However, we need to be clear that this correction could be very short. If the gold and silver prices start to go back and then go above $1,000 and $20, then it would be a testament to just how astoundingly strong the metals bull market is."

Over the past few trading sessions we have seen gold and silver give technical clues that expecting lower prices on an intermediate term basis is the most likely case. This does not mean you should turn bearish on a long-term basis only look at current weakness as an opportunity to buy or add to your holdings. Be patient and ask yourself what asset class is performing better than the commodity sector? Housing, the Dow, Money Markets, or antique automobiles? Knowing the sector got over heated for a short time is far different than thinking it was a bubble and the bubble has burst!

Normally during a long-term bull market, it would be completely natural for gold and silver to be correcting after a run up like we just experienced. With the technical picture having been damaged to the extent we discussed, gold could go as lower and this would not worry me, I have been through this type of market sentiment before.

My point is that we may experience a tough summer once again, but in a bull market most surprises are to the upside not the downside. As more and more former gold bugs abandon ship, and the sentiment gets very poor you can rest assured the bottom has arrived. Then the precious metals continue to ascend the wall of worry.



David Morgan

Author: David Morgan

David Morgan

David Morgan

David Morgan ( is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of Get the Skinny on Silver Investing, and a featured speaker at investment conferences in North America, Europe and Asia. You can receive a free 30 day trial subscription here

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and The Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing, which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided.

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