Tax & Financial Consulting Services
What To Do as Silver Corrects
Karibu (Welcome) G&G Readers,
I told you so…hopefully…you took my advice a couple days ago when I told you if you were over leveraged in silver to protect yourself. That day silver was at $44.90 as I write this article it’s sitting at $34.78. If you missed that newsletter, click on the link below, or visit G&G Associates newsletter archive and click on the May 3, 2011 posting:
I read this article today where the author quoted, “ Seasoned investors know to buy low and sell high.” But what the author doesn't tell you is that if silver drops to $20 or $25 an ounce, the average mom and pop investor will be jumping out the window.
I know this because silver is at $35 an ounce and my e-mail is already filled with panicked messages from friends asking, "What do I do now? Should I buy? Should I sell? Help!"
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The silver trade blew up this week.
It was bound to happen. The trade was too crowded. Everybody was making gobs of money as silver hit new high after new high. "To the moon!" silver bugs cheered as the precious metal went parabolic. BL: have to flush out those who have no clue what is happening.
But parabolic moves are unsustainable. They always end badly. And silver was no exception. Just four days ago, silver peaked above $48 per ounce – a 170% gain from eight months ago. It has since lost about 20% of its value, or about $10 per ounce.
Take a look…click link: http://stockcharts.com/h-sc/ui?s=SLV ; then choose “weekly” as the period you want to see.
The chart doesn't look all that bad – especially if you bought silver last September when I told GGIS Subscribers to load up on the precious metal. It's the folks who bought it last week who are in pain.
Of course, if you took my advice last month when I warned GGIS readers that silver was trading much too far above its 200-day moving average (DMA) to offer a good trade, you avoided that pain. Yes, you also avoided the potential profits that could have been made if you were quick enough to get in and out of silver during the second half of April. But at least we stayed off the emotional rollercoaster.
So where do we go from here?
In previous years, whenever silver rallied more than 50% above its 200-DMA, it always came back down to at least test the moving average line (the blue line on the chart above). History suggests that'll happen this time as well.
This process should take at least a few months as the price of silver falls and the 200-DMA climbs slightly higher.
It won't be a straight shot lower for the metal. In fact, after the recent violent selloff, silver is oversold and poised for a temporary, short-term bounce. But I suspect once that bounce is out of the way, silver has lower to go.
My advice today remains the same as it was last month…
At the very least, silver needs some time to consolidate its recent gains. The best case is the metal could hang out here for a while and give the 200-DMA a chance to rise up closer to the current price. The worst case is silver could be headed for a nasty correction.
Either way, if you're thinking about buying silver, you'll likely get a safer entry level a few months from now.
If you are a GGIS subscriber…I’ll let you know when. If you aren’t a GGIS subscriber…why not? And, best wishes to you.
If you need a one-on-one consultation to learn how to implement these investments or any other on the GGIS portfolio, feel free to contact me to setup an appointment.
Until the next time!
Metta (Wishing You the Best)
Asar Gary Gray
Tax & Financial Consultant, RFC
866-361-3872 toll free fax
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.