What's Going On In PM's?!

By: Michael Kilbach | Thu, Jun 28, 2007
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The past few days of trading in gold and silver are a great example of why we continually stress the importance of keeping the big picture in perspective. It is difficult not to become emotional when dramatic one day drops catch even the most seasoned investors off guard.

In the short term, strong dramatic price drops strike fear and doubt into our trading decisions. In these situations we are likely to sell out of our well considered investments and bury our heads in the sand as we can not bear to watch. Remember, if trading the financial markets was easy, everyone would be home building wealth and nobody would be working.

In this article we will show a series of charts that may help put some perspective on the recent price action in silver and gold.

The following is the three year weekly chart of silver ending June 26, 2007:


Chart courtesy of StockCharts.com

Does this next chart look familiar? (Please carefully compare the two charts)

Below is a three year chart of the weekly price of silver ending August 26, 2005.


Chart courtesy of StockCharts.com

You will notice the following similarities in both charts above:

  1. A major price advance, correction and consolidation climbing on a strong trend line (blue line).
  2. After many months of consolidation, an aggressive price drop (blue oval) below the blue uptrend line.
  3. The RSI (top blue circle) breaking below 50.

Please note what happened to the price of silver by April 20, 2006 in the following chart:


Chart courtesy of StockCharts.com

Above is a three year chart of the weekly price of silver ending April 20, 2006.

In the above chart you will notice:

  1. The dramatic short term correction in August 2005 outlined by the blue oval.
  2. After a few more weeks of sideways trading action a major price advance followed (outlined in blue box).

The above similarities between August 2005 and June 2007 are remarkable but it does not necessarily mean the same result will transpire. However, this observation does help put into perspective the potential deception of short term market movements. The shocking one day drop in the price of silver and gold on June 26, 2007 may not be as abnormal as it first appears. Following short term trends sometimes results in investors forgetting the bigger, more important picture.

In the big picture, does gold still appear to be in a long term trend? Does Silver still appear to be in a long term trend? Are precious metals over valued relative to other investments? Do we see a massive surplus of silver, base metals, and other commodities inventories? In the big picture could this possibly be a relatively low risk buy point?

We certainly do not mean to imply that we know for certain exactly what will transpire in precious metals in the coming days or weeks. Short term movements are very difficult to predict. We are in a seasonally weak time for precious metals and the price of bullion as well as mining shares could easily head lower. Caution is warranted but when we keep these short term movements in perspective it is easier to keep our emotions and trading decisions under control. We do not plan to sell what we believe are our undervalued positions but instead we will be looking for buying opportunities in precious metals investments. If we are lucky we may even be able to buy at lower prices.

If you found this article useful please watch for our soon to be released "When Is It Time To Worry?" article on this website. You may also subscribe to our free newsletter at www.investmentscore.com. Finally, stop by and check out our unique custom timing charts and investing system when visiting www.invesmentscore.com.

 


 

Michael Kilbach

Author: Michael Kilbach

Michael Kilbach

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