Gold, an update

Since I published my post “Gold on the way up, fasten your seat belts” gold moved up more than 6%. Taking into consideration that I wrote the post a couple of days before posting it, the increase would have been more. In the same time period Silver moved up more than 9%. This is impressive in just 2 weeks. What now? Might be your question.

Well looking back over the past 9 years, one could say that selling gold before May (best would have been late March) and to stay out over the summer months, buying back in September, would have been the best strategy. Will it be the same this year?

Well it very well might be the case. I have no doubt that the Central Banks, via the bullion banks, will try whatever they can in order to push down gold and silver prices. Over the past 2 weeks we have seen many of those attacks. But, and that is in my opinion important, their attacks did not show the same success as over the past 9 years. Maybe the best example has been last Tuesday, an option expiry day. On option expiry days the bullion banks are increasing shorts enormously in order to push prices down. Why? Well because they need lower prices as they have many shorts on their books. If the bullion banks are not able to push prices down in a considerable way, many of the call options will be in the money and therefore the bullion banks risk requests for delivery of physical gold and silver. This would not be such a problem unless they do not hold the gold or silver in their vaults, which is the case. Therefore if they have to deliver and first have to buy the physical gold and silver in the market, they would, without doubt, push prices up further and this would push more shorts into losses.
Over the last years we were able to see the same game over and over. Just before option expiries the bullion banks started their action in order to push prices down and save their day.

So why last Tuesday was a special day regarding Gold and Silver? Well as always on option expiry days, the gold cartel (Central Banks via their bullion banks) started to push prices down. However on that day the longs did not (as in the past) run for the hills selling their long position. On the contrary, whenever prices went down there were buyers all around, grateful to be able to increase their position at lower prices. That means there are strong hands in the market, waiting for lower prices in order to buy and to increase their gold and silver holdings. The end result of this particular fight on Tuesday was that the Gold and Silver prices on the close were high and therefore a lot of options in fact were in the money at expiry.
My expectation is that the holders of these in the money options, will ask physical delivery and that will put upside pressure on gold and silver prices.
(The next battle can be expected at USD 1,000 for gold as the Open Interest in gold Call options for June stands at 101,196 contracts of which 53,932 contracts will be in the money if gold exceeds USD 1,000 per ounce).

Well last Tuesday was certainly a defeat of the Gold Cartel. A defeat we have not seen over the last 9 years. The battle is on. The Gold Cartel has won many small battles and many investors lost money due to being on the wrong side. However to me it seems that Gold investors might lose a battle sometimes but will win the war. Why do I believe so? Although the Gold Cartel did fight hard to keep gold prices low they were not really able to keep the prices on a low level. Over the last 9 years gold has moved up from below USD 300 an ounce to almost USD 1,000 today and silver has moved up from a price below USD 5 an ounce to a price of USD 15 today. This, taking into account the manipulation of the Central banks and their bullion banks, is an impressive increase indeed. Of course without the battles won by the Gold Cartel, the gold and silver prices would already today be much higher. This might be frustrating for those who hold Gold and Silver, because they could have won more with their investments (although an average of almost 20% per annum for a buy and hold gold investor over the past 9 years was certainly not that bad at all), the good news is that both, gold and silver, have still a high upside potential due to the manipulations of the Gold Cartel. That means that new investors still have the excellent opportunity to make nice profits over the next couple of years with investments in gold and silver.

Well dear investor, of course I cannot guarantee that the Gold Cartel will not be successful pushing prices down again. However there is no doubt that they are not as successful anymore as they were in the past. This is already an indication that things are changing. As they have been able to keep prices artificially down, the pressure for higher prices has increased. Just to keep up with inflation (according to 6,000 years history, gold and silver prices always adapted to higher inflation over time) prices of gold and silver have to go up considerably (gold up to USD 6,000 per ounce and silver way over USD 50).



Therefore I believe that unlike over the past 9 years, this year the situation might very well be different. This year the summer months might not be as dull as over the past 9 years and instead might in fact be excellent months to be invested in Silver and Gold.

Enrico Orlandini sees it the following way
Quote
Many people are waiting for a correction to buy gold, silver, and gold stocks and they are being left in the dust. The few corrections that do occur have violent moves that last hours instead of days and investors are scared off. I don’t see a correction greater than 5% right now and those of you who want to get on board would be smart to do it sooner rather than later. I know it’s hard to remove emotions from the market, and gold is the hardest of all, but the gold market is signaling its intention to go higher and that is bullish. Gold will test critical resistance at 999.90 (spot price) for the third time and I believe price will break out above it and stay above it this time around. Once that happens I am convinced that gold will explode to the upside, eventually reaching my price target of 1,365.00. Those of you expecting “seasonal” declines in the price of gold will be bitterly disappointed.
Unquote

Well my guess is that Orlandini is right with his assumption. Due to the fact that in my opinion the big banks are already insolvent (if you do not believe it, the video on the following link might make you change your opinion http://www.pbs.org/moyers/journal/04032009/watch.html)
, the fact that the recession is by far over (I believe we are still in the first quarter of the correction) and the fact that there are still enormous amounts of speculation in the market with huge gambling position that still have to be eliminated, I use to recommend to everybody who asks me to hold at least 1/3 of bankable assets in something tangible, preferably precious metals. A part of this position could, of course, be invested in the fund “Incrementum Fund uno” which invests mainly in gold and silver. If you have interest, please send an e mail to the e mail address mentioned on the left hand side.

What to do? Well if you are out of Gold and Silver, holding a position might be an idea to consider, unless you do not mind at all to be out of the market and maybe miss an opportunity for profits. If you prefer to be on the safe side (although holding cash with banks that might be out of business soon, holding bonds including Treasuries and holding equities to me do not seem to be really safe) and you do not mind missing an opportunity to make profits but you are willing to reenter at higher prices, being out of the market is certainly an excellent option.
If you are holder of a gold position, you have several options.
You could reduce your position and maybe reenter later this year (e.g. in September). That is fine if you feel like the investor mentioned before.
Another option would be to hold on to your position and not make any changes at all.
In case we would see price corrections of more than 5% buying on dips seems to me an interesting alternative in this market environment. This of course would need your following the markets in order to react on time.

Is selling the whole position with the intention to reenter at lower prices something to consider? Well, maybe yes or maybe no. Personally I do not believe that this is the best move. If you really want to optimize profits with this strategy it might be an idea to do it with a part of the position only. Well anyway if you do not mind getting in at higher prices in case there would not be a correction this strategy is of course fine. However according to my experience investors with this strategy run the risk that they never reenter again because they normally stay out of the market waiting for the correction that does not come (like the investors that never bought over the past 9 years because he or she were waiting all those long years for correction that did not come).

If you like to discuss your strategy with me do not hesitate to let me know.

Next week I will post more general information

with you a great time