Knowledgable readers are what we seem to have in spades here at Gold Survival Guide. We get some great insightful questions. Here is one received this week that we thought worth sharing:
“In your opinion, why isn’t gold making the periodic corrections that it did the last time it rose to about $1950.00 per ounce US. I bought a lot when at $550 per ounce and saw $150.00 dollar corrections and even a $200.00 correction soon after I had just bought seven ounces, then start rising again. What’s going on here?”
Who knows for sure is the honest answer! But we’ll hazard a few guesses.
Here are just some of the factors that may be stopping any significant gold corrections:
After gold and silver have fallen so far there are then very few sellers left. We get the impression that many people don’t really believe the “gold bull” has returned. So they are sitting on the sidelines, but slowly being lured back in. So any slight pullback seems to be being bought. Hence we are not seeing many large drops in price. Or looking at it from the opposite point of view. The big falls come when there are no buyers left – everyone is in (for that move) and so it doesn’t take much selling to move the price lower.
Another indicator of this expectation that there will be a large fall is in our business we have been seeing more people actually selling gold and silver lately. Many of these likely bought near the peak of 2011, so they are possibly trying to recoup losses. The odds favour that their assumption that a fall is coming will be wrong – the majority usually is.
There has been a slow but steady increase in Institutional investment shown by the increase in holdings in the likes of the GLD ETF. So with the price trending up that seems to be attracting more of this trend following money. We recently posted a note from Ronni Stoeferle that you may or may not have seen where he said:
“When it comes to gold, institutional clients and bankers and that like tell us that they’re waiting for this kind of correction. So there seems to be so much money on the sidelines that no bigger correction is happening – everybody is just buying the smallest dips.”
“They are buying every dip, as they have not participated in the gold rally in Q1.”
A Precious Metals Correction Must Come Now? Mustn’t It?
“What I feel while talking to a lot of asset managers in the gold space, which really suffered during the last 4-5 years, is that many of them are still extremely cautious and most of them don’t really believe that we’ve seen the end of the correction and have entered a new bull market. But the price behavior and the development of mining stocks make me pretty convinced these days that this is the beginning of the next stage of the bull market of gold. But I think this cautious attitude is of course a product of the last 4 years, when we have seen quite a number of bear market rallies – when it comes to the sentiment within our space, I think it’s still slightly bearish.”
The new Shanghai Gold Exchange “Shanghai Gold Benchmark Price” seems to have had an impact on the price as well. It isn’t yet a rival for the London Bullion Market Association fix, but since the Shanghai Gold Benchmark Price fix was launched in April, it appears to be having an impact. The big move in silver over the USA 4th July Holiday weekend actually began in Asian trade. As discussed by Chris Duane in the Silver Fireworks video we posted last week.
The recent manipulation fines against the likes of Deutsche Bank may have “loosened the shackles” somewhat in terms of price control. Or maybe “The Powers That Be” have simply decided to loosen the reigns?
We’re sure there will be a hefty correction to come – but the question is from what price?
It could be from a much higher price than we are at currently. We still get the impression there are plenty of doubters about the current run higher in gold and silver. That said silver is looking rather parabolic at the moment so a pull back would be expected. It will just be interesting if this is a very large one or more of a consolidation like gold had after its recent moves higher. Be careful about trying to time your purchases in gold and silver here. Our preferred method is regular purchases. So by all means start your hoard but keep some cash reserves in case you see lower prices ahead. To better understand what technical analysis is, and help with timing when to buy gold or silver and check out this article: Gold and Silver Technical Analysis: The Ultimate Beginners GuideTo learn more about when to buy gold and silver see this article: When to Buy Gold or Silver: The Ultimate Guide