Gold Silver Reports — Friday was undeniably brutal for gold investors. Some of our favorite mining stocks were down 10% or more in a single day.
There is a bit of blood in the streets and it could certainly get worse. Timing short-term movements in such a volatile and manipulated/leveraged market is nearly impossible. So, what is a gold investor to do?
As a veteran of multiple gold bull and bear markets, I try to keep my emotions in check and avoid panic selling. I know that I will not be able to time the bottom perfectly, so I buy in tranches. I may put 1/3 of my available cash to work this week, 1/3 next week and 1/3 the following week. Using the approach I reduce the risk that I will mis-time my new purchases while also increasing the odds that I pick up some shares at an intermediate bottom.
I also try to maintain perspective by remembering that although we have given back some gains this week in our remaining position, many of these stocks are still up over 100% year to date. Fearful investors can only see the day’s losses and focus on the short-term. They are feeling the pain of the loss and losing perspective on the long-term investment strategy and trajectory for the gold price.
I don’t believe the FED will be able to hike interest rates in June. They might do so by the end of 2016, but even then it will only be a move of 25 basis points. Anything more and they risk throwing the equity, bond and real estate markets into a tailspin. The FED knows this, but they like to keep the markets thinking that the economy might be healthy enough to raise rates significantly. It is not.
I think gold is likely to find support around $1,172 to $1,197 and silver around $15.10 to $15.40 This would be a 50% re-tracement of the advance from their late 2015 lows. Gold has more immediate support around $1,206, which was prior support and also the Fibonacci 38.2% retracement level. The RSI is pointed lower and still has a bit of room to drop, so I suspect we will see gold retreat to somewhere in between $1,172 and $1,197.
When the FED fails to raise rates in June, the market will realize that precious metals were incorrectly sold off in anticipation of this phantom rate hike. There will be an upward revaluation of gold and silver prices. This bounce will be even more pronounced in mining stocks, which have been offering leverage of 3X the move in the underlying metals this year. They may pull back 20-30% during this correction, but are likely to rocket to new highs in the 2nd half of the year.
So, I believe it is wise to buy this dip in tranches with the expectation that both gold and silver will make new highs during the back half of the year. The FED meets on June 14-15 and I would be very surprised if they were able to raise rates. But we should also keep in mind that a 25 basis point increase is fairly insignificant in the grand scheme of things. And even if they raise rates, gold has a fairly strong history of advancing alongside interest rates.
It is usually the fear of rising rates that can hurt the gold market much more than the actual movement of rates higher. This was evident as the gold price finally rocketed higher just after the FED announced the first rate hike in December. The market didn’t care. If anything, the bounce in gold and silver prices showed that market participants were relieved of the constant speculation and indecision over interest rates.
I think the same thing is likely to happen again, should we see another rate hike. And if the FED balks, I would hope investors would start to realize that the rate hike game is just a psychological strategy aimed at manipulating investors and not honest policy decision. Which raises the larger point of why we have a small group of bankers fixing rates rather than allowing the free markets to naturally find the proper equilibrium. — Neal Bhai Reports