Seeking Alpha

Long-Term Trend for Gold and Silver Is Intact


Posted:  Mar 22, 2011
By Jeb Handwerger

It's very difficult for a trader to stick to a plan and not let news events dictate decisions. But every once in awhile there are news items that come along and attempt to trip investors up, forcing some to take their eye off the big picture. Many of us understand the long-term potential of precious metals and commodities, but the emotions -- either unbridled enthusiasm or gloom and doom -- of the herd often affect our decisions negatively at short-term turning points. This past week the news out of Japan (iShares MSCI Japan Index (EWJ) affected the majority of investors, who liquidated their positions and ran to the US dollar (UUP) and to long-term Treasuries (TLT) as safe havens, which I believe was a mistake as the G-7 came to the support of Japan.

Margin calls were issued and the fire sale intensified due to the hysteria produced by the doom-and-gloom media. It is important not to become influenced and to not allow news-related items to shake one off a long-term trend. Staying the course during times of great fear or news-related reactions is very difficult, but is necessary if one wants to ride a secular bull trend. You must not allow the news background to take your eye off the ball. Already, I heard from some that they want to give up and throw in the towel, and this is normal during sell-offs. When the times are easy and stocks are breaking new highs everyone wants to buy and it is great to be in the stock market, but when there is a sell-off and when companies pull back to key support, many want to throw in the towel and never want to trade again. Be careful of following this behavior as these sell-offs often turn out to be buying opportunities.

I believe the positions that we are in with precious metals and commodities will continue to maintain a two-year trend. The situation in Japan will force the printing of yen (FXY), putting more pressure on fiat currencies as deficits soar. I believe the geopolitical issues in the Middle East, combined with the Japanese earthquake relief has pushed off any tightening measures from US Central Banks and may even push Bernanke into expanding QE2 into QE3. The rebuilding efforts and monetary stimulus should be beneficial for gold (UGL), silver (AGQ), base metals (DBB), and commodities (DBC).

The US equity market (SPY) is reaching oversold levels not seen since my buy signal in August of 2010. The Japanese earthquake correction may be reaching a climax and a point of capitulation. The S&P has reached oversold levels on the RSI and stochastics. Each time it has reached this level a reversal has occurred. This should benefit mining stocks that have seen forced liquidation due to margin calls. As the 200-day moving average is moving higher, one needs to stay the course and trust the trend.

SPDR Gold Shares (GLD) has paused for two weeks as investors cover margin calls. Selling has occurred across the board and this may signal forced liquidation. As the equity markets stabilize so too should gold and a breakout into new highs may occur shortly as it appears to be setting up for a cup-and-handle breakout, which is indicative of a major move.

Beware of trading on fear rather than facts. It is easy to become distracted by news stories around us. A cold day in July does not mean that autumn is here. A 9.0 earthquake doesn’t mean that Japan is over as many are predicting or that secular trends have reversed. Japan will begin rebuilding as it has done repetitively in the past following natural disasters. Do not be incorrectly drawn to the conclusion that the trends in precious metals or commodities are reversing. We must step back and separate the wood from the forest. Pullbacks in precious metals should be times to add to positions.

These articles are provided for informational purposes only and were obtained from publicity available sources on the Internet. These articles do not constitute financial advise or trading recommendations by Global Asset Management ("Global"). Global neither warrants the accuracy or completeness of the information contained in these articles, undertakes to update them, nor is it responsible for any omission or error contained in these articles. Viewers are encouraged to conduct, and should only rely on, their own independent research.
The purchase or sale of precious metals involves substantial risk and volatility. If you are contemplating purchasing and/or selling precious metals, you should consult with an independent financial advisor to learn about the inherent risks. Global does not render, and nothing in this website should be construed as, financial advise, a trading recommendations or a solicitation for the purchase or sale of precious metals.
 
 

Daily Chart : Gold

Daily Chart : Silver

Daily Chart : Platinum

Daily Chart : Palladium

 
 
 

Copyright © 1996-2010 Global Asset Management. All rights reserved.

2425 Hollywood Blvd. Suite 100. Hollywood, Florida 33020 :: info@globalam.net

phone: 954.921.1021 :: fax: 954.921.1536 :: toll free: 1.888.421.1021