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« Gold and Silver Investment Summit: London 2008 | Main | BUY GOLD, Call Options »
Sunday
Aug102008

Golden Buying Opportunity, With a Silver Lining!




Gold made a bottom at $651 on August 16th 2007 before rallying to over $1025 by March 2008. The anniversary of that low is less than a week away and we suspect history is going to repeat itself as gold prepares for anther tremendous rally.

(Click on thumbnail to enlarge chart)
Golden Buying Opportunity 100808

Technically, gold looks to be a good buy at these levels for the following reasons:

Buying gold close to the 200 day moving average is a good strategy, buying below is even better. The RSI for gold is near 30, a classic BUY signal that rarely presents itself and should be taken advantage of.
We see gold holding at $850 on its support line, before building a base and moving much higher in the coming months.
STO is oversold, along with many other technical indicators.

And if gold is oversold, then silver is severely oversold as the chart below shows:
(Click on thumbnail to enlarge chart)
Buying Opportunity, With a Silver Lining 100808

With silver just 33 cents from a support area which starts at $15 and goes through to $14, we view these prices as great chance to load up on silver and silver stocks. The technical situation for silver is similar to the yellow metal, except in this case poor man's gold appears to be more oversold and is perhaps a better buy. Remember that the silver market is more volatile than gold, and tends to have sharper corrections (one of which we have just witnessed), but at the same time it can bounce back higher, and faster than gold, which makes it an excellent trading vehicle for those with the stomach to speculate on the oscillations.

This sell off in precious metals (and oil) has primarily been caused by a strengthening US dollar. Why has the greenback been making gains? Hot air. The USD has been moving up as the Fed has been talking about inflation and the possibility of raising interest rates. We must keep in mind that the Fed hasn't actually raised rates yet, and even if they do, how far will they go? We expect any rise in interest rates to be minimal. And even if they do embark on a rate raising policy, will this stop golds accent to $2000+? Absolutely not. The most it will do is delay gold making an inflation adjusted all time high. Remember that in 1980 gold ran to $850 in the face of double digit interest rates. So even if the Fed takes rates up to over 10%, which represent a quintupling in interest rates, this will not be enough to stop gold and silver marching onwards and upwards.

We have been heavy buyers of gold, silver and the associated mining stocks on this dip. We have signalled multiple BUY signals, including some signals on gold call options and options on mining stocks, as we firmly believe that the downside is limited right now, whilst the upside has fantastic potential.

Our message for this week is simple: BUY gold and silver then hold on for the ride!

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Reader Comments (26)

enjoy reading your sites...thank you frg fronteer and hl hecla have both hit 52 week lows recently --have any idea when you will start buying these again?? are fundamentals strong still and technicals weak enough for you to issue buy signal yet???

August 10, 2008 | Unregistered Commenterlou

Sam, are you writing your own rules for technical anaylsis? This is the first time I ever heard anyone advocate buying something when it's below the 200-day MA. Second, you could wait for gold to test the crucial 850 mark before issuing some sort of buy recommendation. I know this is after the fact with it now trading at $830, but had I seen this article before today's open I would still be criticizing it. Couldn't you have been a bit more patient? This article is dangerous for investors and full of hot air.

August 11, 2008 | Unregistered CommenterPaul

Lou,

We currently have no plans to add to our positions in those two stocks as of yet, but we are overwhelming bullish on precious metals, as evidenced by our recent, multiple, BUY signals.

Paul,

Look back at gold over the past few years. The best buying opportunities have come when gold was on or below its 200dma moving average. When nobody else wants to buy, that is precisely when we do.
In hindsight, yes, we could have waited for gold to test $850. However, we would run the risk of gold bouncing and missing the a large proportion of the rally. Therefore we made investments around $850 and we will continue to buy as long as we are of the view that gold is oversold, as we believe that gold prices are heading much, much higher over the next year.
Our message for this week is still the same, and perhaps even reinforced by today’s market action; BUY gold and silver then hold on for the ride!

August 11, 2008 | Unregistered CommenterGold Prices

I don't understand the statement, "We have been heavy buyers on this dip." That suggests that the authors have hordes of cash lying around. (Probably untrue because if the authors were so enthusiastic about gold they would already have been 'all in'.) Or it suggests that the authors were selling gold at its recent peak in order to buy back at a lower price. (Possibly true and thereby dishonest as the authors have been consistently pumping gold.) Either way, by making that statement it causes the reader to scratch his head and wonder about the honesty of the author(s).

August 12, 2008 | Unregistered CommenterDan

Dan,

We would strongly dispute your statement that we are in any way "dishonest" or have been "consistently pumping gold".
Every trade we make is published on the site and available for anyone to read, free of charge.

In case you've missed what we have been saying, this is a reminder:

We have generated cash by taking profits on gold stocks before the correction in precious metals.
On January 31st 2008 we said:

View article here:
http://www.gold-prices.biz/gold-and-gold-stocks-take-some-profits/

We have also traded gold, gold stocks and options just after the correction, as prices were bouncing around a fair bit, and these profitable trades also produced cash. Every single trade is documented on the website and trading signals were published as we bought and sold.
For example:
http://www.gold-prices.biz/yamana-gold-take-profits-on-short-term-trade/
and
http://www.gold-prices.biz/kinross-gold-call-options-up-100-in-two-weeks/

This is where we have generated the cash for our heavy buying.

So we were indeed selling gold in order to buy it back at a lower price, beginning to take profits on January 31st, although we missed the peak by roughly 50 days.

None of this is secret, as our trading signals are available free of charge, as is access to every article we have ever written on the website.

Therefore we strongly revoke your claims that we have been in any way dishonest.

If you have any more queries about our positions or what we have been saying, please don’t hesitate to let us know.

August 13, 2008 | Unregistered CommenterGold Prices

OK, since gold failed to hold the support line at 850, and is now pretty much at a 50% correction of the latest move, what happens next? If you are right, and I pray you are, we are in for the next rally, since a 50% correction is not without precedent. However, the xau and selected star stocks have corrected up to 90%, and since they led the market up, and frequently lead the market down, if we do NOT hold here around 820, what do you think we should do?? I am not interested in watching gold go back to 650, and wonder if there are any technical indicators which are of help when the usual ones (stochastics, RSI, Elliot wave counts) may be faltering badly.

August 13, 2008 | Unregistered CommenterSRG

SRG,

We see 800 as the next major support, which we will believe gold will hold. 800 provided good support in Nov/Dec 2007 and we do not see gold back at 650.

We have found that the RSI has been very effective in giving bullish signals on gold, and at the moment it is giving one of the most bullish we have seen in years, currently at 22.55.

Also remember that the fundamentals for gold are still strong and in the longer term we still see gold at over $2000, and we definitely believe that gold price will make a new nominal all time high within the next year.

Hold on to your gold positions.

August 13, 2008 | Unregistered CommenterGold Prices

My comment is for Dan. How is it dishonest to take profits at high levels and buy back at lower levels? That's what traders do, regardless of how much they like an investment. Also, Bob has told us on several occasions that he was taking profits on some of this gold and silver stocks (HL, AEM, etc). This is a regular thing on this site. Not that he needs to. Bob can take profits on his investments whenever he wants without telling you. You can take profits without telling me. And I can take profits without telling Bob.

Bob has been fairly clear about his strategy all along. He has a core position which he never sells, and the he has trading cash which he moves in and out of investments. So he's both a trader and a long-term investor. I do the same thing, and know many others successful traders who play the gold bull the same way. So don't get confused here. There's room for both strategies.

One last thing - "heavy buyers" can mean different things to different people. It doesn't mean that they've got huge hords of cash lying around. It just means they've been buying heavily according to their standards. I put about 25% of my overall portfolio into gold stocks over the past couple of days and I consider that to be heavy buying.

I hope this helps to clarify things.

August 13, 2008 | Unregistered CommenterDBR

Sorry for the multiple comments. I have nothing to do for the evening...

This message is for SRG. First of all, I don't think that gold can be produced for $650 an ounce anymore (additional mining costs, energy costs, etc). With that in mind, I doubt it'll go down that far. If it does, companies will stop producing and it'll shoot back up again. Just my opinion.

Second, if you look at past selloffs like this one (the big ones), everyone is terrified about gold having wild drops. Yet it has always turned out to be a great time to buy. So it's normal to be worried about it. However, worrying won't make you money. Buying when the RSI dips below 30 does.

And one final note to Paul - buying below the 200 day moving average is great in bull markets. Isn't cheaper better? Also, what's wrong with creating new Technical Analysis rules? As long as something works, I'll adopt it into my book of rules. And that one checks out.

And one last thing - don't criticize Sam (or Bob or anyone) for suggesting that people buy at $850 or around there. Criticize the people who told you to buy gold at $1,000+ and silver at $20+. Gold-prices.biz sure wasn't making buy recommendations at those prices. (In fact, sometimes I was wondering when they'd ever tell us to buy again...). Picking bottoms is a crapshoot. Always. So don't expect perfection.

August 13, 2008 | Unregistered CommenterDBR

DBR,

Thanks for the great comments! If only you had more evenings with nothing to do eh!

We could not agree with you more. We take a sub 30 RSI as a great buying signal, as we do with gold under the 200dma. One of the key aspects of becoming a successful independent investor is to, in a sense, "make your own rules" and come to your own conclusions about the markets. After all, if everyone followed the same set of rules, nobody would make money!

Also, thank you for acknowledging the fact that we did not signal to buy at those higher prices, and that picking that exact bottom a difficult task!

To everyone who has posted comments, thank you, this is great debate.

August 13, 2008 | Unregistered CommenterGold Prices

OK. Maybe I stand corrected and the authors were not pumping gold at its recent highs. If so then I apologize. I must have been thinking of Jim Sinclair.

August 13, 2008 | Unregistered CommenterDan

Ah yes, Jim Sinclair with is frequent "This is it!" emails. He'll probably turn out to be right in the end, but I also notice that he gets excited and gives buy advice when precious metals rocket. A good contrarian sell signal for traders, in my opinion! To be fair, there are others who do the same thing.

August 13, 2008 | Unregistered CommenterDBR

I had been skeptical on gold and silver when they made multi-month highs back in mid-July. That was not confirmed by platinum and palladium, whose highs were in mid-June.

Well right now 850 is major resistance. So I would recommend against adding to positions until it decisively breaks that mark.

August 13, 2008 | Unregistered CommenterPaul

Sam, I think you need to use technical analysis more objectively. Buying when prices are below the 200 day may have worked well during the past few years. But what if we're in a bear market? That would be suicidal. Staying perma-bullish or perma-bearish isn't the way to trade markets.

August 13, 2008 | Unregistered CommenterPaul

Hello,

I like how you trade the gold and silver complex. I have observed that when gold and silver are their hottest in December or so, that the oil complex is at a seasonal low in the trading range. I wonder if you had considered some stock and call option strategies in the oil complex as a way to game the highest volatility at that time of year as PM complex is usually long in the tooth at that point(the winter time)?

August 13, 2008 | Unregistered CommenterDavid

The big problem I have with Jim Sinclair is that he never admits when he is wrong. I've been reading he site for years now and not once have I seen him admit when he was wrong or when he didn't see a correction coming. His general prediction that gold will go higher means almost nothing as most gold investors believe this. But he takes things further and sets price and target dates. When these price/dates are wrong he makes excuses. It was the 'cartel' or the 'plunge protection team'. He makes fun of people who take on more risk, but he is part of the problem. By setting price/date targets he causes weaker readers to take on additional risk (to make higher returns).

August 14, 2008 | Unregistered CommenterDan

I'm keeping my gold positions because the recommendations here have been so good for so long. However I did hedge my positions by buying dzz when gold dropped below $900.

August 14, 2008 | Unregistered CommenterSidj

Hi.....
I have been regular to this website..........and have my great regards to authors......
Everything they do and think is open to all..........
They never forced anybody to take position rather they informed to individual thinking and update.
Nobody is correct all the time in market........Only market is correct......i believe so.......
So why should we point fingure at any body.....
Remeber Crude Oil.........Defying every technical analysis........it just went to abt $148, from $90......lot of traders went wrong......but they are not wrong all the time.........

Thanks to Everybody at gold-prices.biz for a wonderful job..that's too......free of cost.....

August 14, 2008 | Unregistered CommenterNaveen

Paul,

We do not think that we are in a bear market for gold at the moment, therefore we are happy to buy below the 200dma. If we are wrong then we will make losses and if we are right then we will make profits, such is the nature of investing and trading in the markets. It’s a strategy that works for us but everyone is different and so if you have your own unique strategy that works then that’s fine.

We do not stay perm-bullish/bearish on anything, we simply call the market as we see it. For example we stopped being bullish on gold for the short and intermediate term beginning on January 31st, when we said:
“Gold is overbought in our opinion and we think the yellow metal is in for a short term correction.”
“Kinross Gold: Sold for an average price of $21.96
Yamana Gold: Sold for an average price of $16.50
Agnico-Eagle: Sold for an average price of $63.27″
View article here:
http://www.gold-prices.biz/gold-and-gold-stocks-take-some-profits/

Thanks for your input Paul, we genuinely appreciate people questioning our strategies as it helps us to look at them in a different way and then we will either adapt or confirm our way of thinking.

David,

We currently are focused on investing and trading in gold and silver, not in oil. If you have any ideas that you wish to share, please don’t hesitate to post them as we would be interested to know what you think and the insight may be of use to other readers.

Sidi,

Well done for holding onto your gold positions, we know its not easy. However we believe that this week probably represents the bottom (at around $800) and from now on the downside is limited and gold should begin moving up in the coming months.

Naveen,

Thank you for your comment; we are glad that you find our insight useful!

And thanks to everybody for your comments!

August 14, 2008 | Unregistered CommenterGold Prices

Thank you. Looks like you, and the other technicians I follow, have called this just about right after all. That really, really sick sinking feeling is also almost always a good buy signal!!. There could be a brief re-test, but I agree the all -clear is probably there with the RSI at 22 on London gold, and the xau smartly off its low. I am adding now to my core positions. The 'leveraged" ETFs look attractive since only a few stocks have done really, really well, AEM being the star, now already over 10% up off the bottom! Read Frank Barbera from yesterday for a really scary and all-too-likely scenario for what may happen to the dollar, gold and the other commodities in the next year..

August 14, 2008 | Unregistered CommenterSRG

SRG,

You may be interested to know that we just purchased call options on AEM:
http://www.gold-prices.biz/fantastic-buying-opportunity-bought-aem-calls/

We regard this as the bottom and a fantasic buying opportunity in gold.

August 14, 2008 | Unregistered CommenterGold Prices

Unless you have any good reason, other than gut instinct, on why every dip is an imminent buying opportunity, I continue to stay out of it.

August 15, 2008 | Unregistered CommenterPaul

For those of us like me who are 'all in' already, if it doesn't hold here at the high 700's we are in for some serious pain. Next stop... $650. (shudder)

August 15, 2008 | Unregistered CommenterDan

Hi Guys!
I know you don´t need to be praised, anyway I want to tell everybody that I read all your letters, even though I disagree with some picks, but i like your crystal clear approach to investors. Don´t loose that, even though someone say something hurting or disregarding. I admire you and would like to become another successful investor, so I´m learning fron your successes and mistakes. If you become annoying some time, write it down but don´t send it back. Just get the bitter out and keep sending that freshing influx of bullish sentiment.
Finally, Guys I´m running out of money and we are just a few days about to reaching bottom and many days to get paid. I wish a have cow to milk!
kind regards, toni

August 15, 2008 | Unregistered Commentertoni

I posted this on Silver-prices.net discussion as well, but I thought I'd bring it here since there's a bit more traffic.

Is anyone else having a seriously difficult time finding silver bullion? The price says $12.70, but I can’t find anything. My coin shop has been out all week, and every online dealer I know of has been cleaned out. I managed to buy some Johnson Matthey bars from APMEX.com, but they’ll be delivered late October, presumably because Johnson Matthey is out of silver. A couple of articles have been written on this phenomenon over the past couple of days.

I checked out eBay, and noticed that the “sold” price for silver bullion is about $18.5-19.0 per ounce! Coins are selling for more. So they say the price of silver is $12.70 US? Maybe the price of paper (i.e. imaginary silver) is $12.70. But the price people are paying for the real thing is quite a bit higher.

This smells of price manipulation here, although I don’t know enough about the futures markets to know what it is. But common sense tells me that whatever it is, it can only end in the price of silver going much higher.

I'm always willing to hear other ideas on why prices are low in the face of high demand. However, I'm a bit perplexed by this.

August 16, 2008 | Unregistered CommenterDBR

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