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« High River Gold Mines Limited: Reject the Offer | Main | The Italian Job »

Gold and Silver A Few Thoughts

Gold, Silver, USD, INDU Chart 28 July 2009.JPG
Chart courtesy of Stockcharts

As July comes to end and August usually presents us with a few weeks of bargain prices in the gold and silver space its time to make a few decisions. The main players in this theater of dreams are the US Dollar, the Broader markets, Politicians and Bankers, Oil and that old intangible 'gut feel'

Over recent times the dollar has performed more or less in an inverse way to the broader market, as the appetite for risk returned so the the broader markets moved up with the DOW trading above the 9000 level. We all know that the return on the dollar is zip, so more and more investors are coming out of their bunkers and putting their cash to work. As we can see from the dollars performance the rally from '79' to '81' didn't hold and the dollar is now back to '79' with a return to the '72' level becoming a real possibility. If and when this happens we should see gold take out the $1000/oz mark and in our opinion never return.

Out there in left field here lurks one or two players that could act as a spanner in the works, the first being the price of oil even though WTI Crude is currently $68.44. If the price drops then many will interpret this move as counter inflationary and gold will lose some of its shine. If the price goes up then it adds to the cost of mining which is extremely energy dependent. Our view, for what it is worth is that oil will stay pretty much where it is now and the precious metals of gold and silver will react to a falling dollar and move higher almost regardless of oil prices.

Acting as a puppeteer and pulling on many strings we have the interchangeable politicians and bankers. Its hard to tell them apart these days, however the politicians are the suits in public office who want to be bankers when they grow up and the bankers are the real law makers who will only grant them acceptance to their inner circle if they serve their time in a dutiful manner and instigate their masters wishes. I guess you thought that was you, eh? Those days are long gone.

Gut feel is just that, if it doesn't feel right then don't do it regardless of the fundamentals or the technical analysis. Over the next few weeks we expect gold to continue with its sideways pattern and may even trade a little lower so if you have not already secured your desired position with both the physical metals and the precious metals stocks then its time to formulate an acquisitions plan. You may want to place orders below the current price levels and then wait patiently for a down day to come along and grant you your wishes.

From September onwards the broader markets could resume their decline in which case we could see investors looking for safety, whether that be in the dollar or via gold and silver remains to be seen, no-one knows for certain. We favour the PM Stocks and will hold onto our core position and look for opportunities to trade any aberration that we spot with our 'opportunity cash'

Finally, we really do appreciate your comments whether you agree with us or not, as the more opinions we get the better informed we all are and hopefully the better decisions we will make.

Have a sparkling day.

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Reader Comments (8)

A snippet from David Gallands missive today:

While I may sound like a broken record, I – and the entire Casey Research team – remain convinced that what we're experiencing here is nothing more than a beautifully set bear market trap that is allowing insiders to dump their shares as quickly as they can be dumped. Don't buy it.

David Galland
Managing Director
Casey Research, LLC.

July 27, 2009 | Unregistered CommenterGold Prices

Hi, I was reading yesterday, in a couple of different articles, that some big players are currently putting large short positions together again regarding gold. Have you been hearing this do you believe this will cause the physical gold and silver market to go into freefall once again this summer thru autumn? Thank you, Steve

July 28, 2009 | Unregistered CommenterSteve


Have you closed your position on GOLD puts yet?

I am hoping to buy around $50 or lower. Dream on.


July 28, 2009 | Unregistered CommenterEP

If we get a hard fall in the general market is that not going to cause a big drop in gold shares and gold too for that matter? A replay of last year? I'm starting to think that the only safe place is short the general market. Even now the gold and hui technicals look to be setting up for a possible strong August rout, a common seasonal occurance. In the 1930's GD when did gold shares start to outperform?

July 28, 2009 | Unregistered CommenterGerry

As we consider what next for gold, I have been thinking of the South African miners, for example AU and HMY. They pay their labor in Rand and sell gold in US$. Depending on exchange rate they are either squeezed or benefit. I am speculating that they will benefit for a while.

Full disclosure on metals - long PCU

July 28, 2009 | Unregistered CommenterBC

It is basic defense to me. The market continues to go up. I, like a number of others, see the significant possibility of a drop. While I am still long the market, I am doing more to protect. I have bought cheep out of the money puts in some cases and/or sold lucrative Aug calls (sometimes for as much as 11% of the value of the stock). As sell orders execute, I am more inclined to hold the cash.

However, I am not shorting the market. An out of the money put at $.20 or $.40 to protect is a lot different (in cost and risk) than a short.

I am working up my gold buy list for later - looking for a correction.

July 29, 2009 | Unregistered CommenterBC

More demand for coking coal from Asian steelmakers implies more demand for iron ore and perhaps by extension other industrial metals. News like this may drive silver to outperform gold for the next several Months....

July 29, 2009 | Unregistered CommenterBC

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