Investment Scoring & Timing
What's Going On In PMs?
Jun 28, 2007
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:
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.
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:
Above is a three year chart
of the weekly price of silver ending April 20, 2006.
In the above chart you will
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.
Jun 28, 2007
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