Painful Surprises and Big Lessons with Precious Metals & Energy
Thursday evening, before I went to bed here on the west coast of the US, I decided to look at the current precious metals spot prices in Asia. Big mistake and a good thing I have a prescription of AMBIEN CR from my doctor which I occasionally use.
Silver had plunged over 10% in one session as was trading around $12.75 an ounce, and gold had broken down below $795. The US dollar was rallying even more (based on what I can not say for sure), and the rumors are floating around that central banks are propping up the dollar for some strange reasons.
Although I thought silver would hold above $14, the plunge below $13 didn't seem surprising and began to remind me of all the other Augusts in the past where the paper contract "movers and shakers" drove silver and gold prices down while lots of investors were off tanning themselves at the beach.
Take a look at the 30-day silver price chart through Thursday, and factor how much lower it has fallen on Friday.
On those occasions, so similar to what is happening now, it set up that I call a "nicely orchestrated deep discount buying opportunity."
That's certainly how August 2007 worked out.
Of course you need money to invest in order to take advantage of these screaming bargains, but even if you don't, you could talk to your advisor about doing some tax-loss swapping.
For example purposes only, you could sell your shares of Washington Mutual (WM) and take your loss and then put the proceeds into shares of something like the gold (GLD) and silver (SLV) or the Central Fund of Canada (CEF). That would only make sense if you need some losses to offset earlier capital gains.
Please talk to your tax advisor and your financial advisor before you do anything like that though. I'm just exploring ideas on how to capitalize on these painful surprises in the plunging prices of precious metals and energy commodities.
Puru Saxena, international investment analyst from Hong Kong checked in today with these insightful words:
The strength in the US Dollar has caused precious metals (especially silver and platinum) to plummet, however this only makes them more attractive as a long-term store of value. Currently, roughly 5% of the funds under our management are allocated to physical bullion and we are gradually buying more into this weakness.
Once the "dust settles", precious metals are likely to consolidate and move higher. It is worth remembering that during the previous commodities bull-market in the 1970's, the price of gold declined by roughly 50% before rocketing higher almost 8-fold! So, the current correction is not the end of the bull-market but yet another painful correction.
Crude oil is currently down to $111 and natural gas is currently around $8.18. Might they fall lower? Our best sources tell us it is absolutely possible.
If that happens there will be many of us who have been waiting to buy great energy companies like Devon Energy (DVN) down around $85-a-share and Apache Corp. (APA) at or below $100 a share.
The oil and natural gas companies (including XTO Energy (XTO) and Anadarko Petroleum (APC)) seem ridiculously cheap at these levels.
It appears the traders have already priced in the idea that oil might drop to $100 and natural gas to around $7.50. For now, the lower the better.
Back to gold and silver, gold especially was hurt by strong inflation numbers that suggest interest rate hikes are probably in the cards. "If these inflation numbers continue, the Fed is going to have no choice but to raise rates," said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. "The dollar is going to trend higher and gold is going to suffer." (Source: CaseyResearch.)
However, Zeman added, "Inflation cuts both ways for gold … These types of numbers could also re-new the inflationary hedge-buying interest in gold and commodities." But market psychology may deter any rally for the time being, Zeman said. "Prices have fallen so far, why take the chance of buying now?" he asked. "Any good rally would be sold."
But some analysts remained optimistic.
"Nothing has changed economically," said Walter Otstott, a senior broker for Dallas Commodity Co. in Dallas. "We still have huge deficits, we still have to pay for the war on terror, China and India are still growing, and financial institutions are not out of the woods."
Interestingly, the sell-off hasn't provoked any change in the SPDR Gold Trust, the largest gold-backed ETF. GLD's holdings have remained steady at 659 metric tons for the past week.
For us investors, it is just another lesson in patience, fear, greed and the wisdom of sometimes doing nothing.
Tax-loss selling season usually doesn't begin until November, but some of that might have begun, especially with the metals stocks and energy stocks Take a look at the 12-month chart below on Agnico-Eagle Mines (AEM):
Stocks like AEM and AUY are below their 200-day moving average and might retest their 52-week lows this month. My sense is that this is NOT the start of a bear market in the precious metals and energy sector. This smells like a concerted effort to prop up the dollar and polish the tarnished financial image of the US before the presidential and congressional elections, which will be here in less than 3 months.
My sense is that once those elections are over, the rest of the bad news will hit the fan and the plain truth about the ongoing credit crisis and monetary crisis will come out, followed by a flight to quality and a new round of stagflation fears. But I've been wrong before.
Meantime, focus on all that you've done right, learn from your mistakes, be thankful for the most important things in life, hug your wife and children, take your dog for a walk, smell the roses and feel the pain. Learn from your failures and take time to meditate.
As Albert Einstein said long ago, "Failures and deprivation are the greatest educators and the greatest purifiers."
And as Warren Buffett said, "Buy when everyone is fearful and sell when everyone is greedy." Your call....and I'm wishing you success and rich long-term results.
Stock position: Long.
Related Articles
|
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
Trading Center
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
This article has 12 comments:
- Stephanie
- 15 Comments
Aug 17 08:46 AMThat same Thursday night, I couldn't sleep. Not because I was worried about prices. I was excited! And a little worried that there would be no silver to be had on Friday morning. I was prepared to not only show up an hour before the coin shop opened, but to call two other coin shops in my area if the first one didn't have any with the hope of securing some more silver. It almost happened on Tuesday, when all they had left was junk silver coins. They were out of the one-ounce rounds (all I can afford or the junk silver coins). Anyhow, I was the first and only one in line so far. The first lady who showed up was surprised to find me sitting there 45 minutes before they opened. I picked up some fresh Amarks that arrived the day before.
You would not be picking up Ambien CR if you knew how these markets work. I do not trade, I hold for the long term.
- kkin365
- 310 Comments
My Website
Aug 17 09:24 AM- James Seaberg
- 2 Comments
My Website
Aug 17 09:45 AMI might add that the central banks could react faster to the coming recessions in various Western economies. Unfortunately, either out of ignorance or corrupt insolence they let the Western hemisphere fall into a recession. Politics always strives of chaos. The central banks as dependent arms of politics together with the politicians, therfore, try to wrest more power out of the coming chaos and miserey of the people. The Fed already got more power from congress. And when the cries for help in the populace get louder the originators of the desaster will gladly come to help by spending more and raising more of the hard earned money of the etatist voters. They will also intervene more in our lives and control us more with ID cards and body searches.
As the business cylce is created by politicians and their minions, the central banks, they both should be abolished. Politicians behave like enemies of the people. As they march towards the bitter end with us and against us, we should take this dip in oil and gold to buy more of it. Try to avoid buying on debt as you can get executed if you get a margin call.
As individuals we can escape the final reckoning but the population as a whole cannot The multitudes of others who don’t want to know because they prefer the distraction of the Olympics will be hit hard. You might as well enjoy the coming disaster as you cannot change it anyway.
- James Seaberg
- 2 Comments
My Website
Aug 17 09:48 AMI might add that the central banks could react faster to the coming recessions in various Western economies. Unfortunately, either out of ignorance or corrupt insolence they let the Western hemisphere fall into a recession. Politics always strives of chaos. The central banks as dependent arms of politics together with the politicians, therfore, try to wrest more power out of the coming chaos and miserey of the people. The Fed already got more power from congress. And when the cries for help in the populace get louder the originators of the desaster will gladly come to help by spending more and raising more of the hard earned money of the etatist voters. They will also intervene more in our lives and control us more with ID cards and body searches.
As the business cylce is created by politicians and their minions, the central banks, they both should be abolished. Politicians behave like enemies of the people. As they march towards the bitter end with us and against us, we should take this dip in oil and gold to buy more of it. Try to avoid buying on debt as you can get executed if you get a margin call.
As individuals we can escape the final reckoning but the population as a whole cannot The multitudes of others who don’t want to know because they prefer the distraction of the Olympics will be hit hard. You might as well enjoy the coming disaster as you cannot change it anyway.
- Georealist
- 448 Comments
Aug 17 10:42 AMAt these prices silver looks especially attractive (down 32% from its last high)...by the by..we really don't need the kind of pretentious doom gloom garbage and "final reckoning" nonsense of James Seaberg (comment above). Central Banks will do what they always do..inflate. The metals correction we see are really regroupings while the fearful and potentially insolvent hoard cash till the next burst of liquidity. You can't profit from the system unless you understand how it works...like it or not.
- searcher
- 100 Comments
Aug 17 12:52 PM- CaptBob
- 198 Comments
Aug 17 01:15 PM"that suggest interest rate hikes are probably in the cards. "If these inflation numbers continue, the Fed is going to have no choice but to raise rates," said Matt Zeman"
Please don't quote "Clueless Matt" anymore! If anyone thinks the Fed is going to increase rates into the teeth of credit "lacking" recession, he'd better ask the dealer to crack a new deck!!!
Is he with a trading desk, or the last LaSalle division employee of GM??.
- Dr. Duru
- 59 Comments
My Website
Aug 17 04:09 PM- FPPC
- 5 Comments
Aug 17 04:26 PM- Marc Courtenay
- 68 Comments
My Website
Aug 17 05:52 PM- ptr44
- 31 Comments
Aug 25 02:12 AMWho do you think you are- the pope? How about we stick with the financials and quit trying to manipulate people.
- User 255382
- 1 Comment
Sep 03 10:12 PMMore by Marc Courtenay