Wednesday, June 15, 2011

Is it Time to Buy Precious Metals?

I always say that you have to be buying gold when you are bored by the market. People tend not to buy into corrections because they are scared to take losses. However, in the grand scheme of things, losses are no big deal. Bull markets will always correct your timing mistakes as long as you don’t panic and sell. It’s also important not be too heavily leveraged.

Back when silver was rallying, I said that on a spike to new highs I would be leaning bearish. Well on a spike to new lows in gold or silver, I will be leaning very bullish. I would much rather see a sizable correction here than a rally. A sideways consolidation along the lines of what we’ve seen the past couple of months is fine too. Gold and silver are both trading very constructively for the long-term oriented investor. They are both building energy for the next rally.

The thing about these markets is that no one has a crystal ball and you must observe how these corrections play out, then invest accordingly. So for example, if silver corrected to $45, then shot right back up to and beyond $50, I wouldn’t really be celebrating. The 10% correction, although somewhat sizable, would not have scared off enough speculative money. The correction would also have been way too shallow for the “smart money” to step in. You need the smart money to be buying because they are the ones who, like Old Turkey, see a rally and sit tight while everyone is selling. They are the ones who create the supply constraints that create the huge rallies.

Anyway, I added some positions yesterday because these price levels are fairly attractive. Some precious metal stocks are down 30%-40%, which is great as far as I’m concerned.

I like to buy when pretty much any scenario is OK to me. If we rally from here, I’m fine with that; if we correct further, I know that the downside is somewhat limited, so I’m fine with that too. I can just buy more closer to the bottom, which is always a good strategy.

I think people are generally starting to understand that an economic recovery will be a drawn out process. The huge overhang of debt we carry and the interest we send abroad act like weights to economic growth. Every day that passes by we add billions to our debt. In other words, the fundamentals for precious metals just get stronger by the day. Although we probably have not hit rock bottom, I personally think it is a decent time to add to your positions and take a vacation. Don’t worry, Helicopter Ben will take care of the rest for us.

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