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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

What Do Precious Metal Investors to Do Now?

Commodities / Gold & Silver Feb 29, 2008 - 07:51 AM GMT

By: Investmentscore.com

Commodities Best Financial Markets Analysis ArticleConsider the following hypothetical scenario and typical investor conundrum: The price of precious metals is grinding higher, catching the attention of new investors to the sector. The price of silver and gold are well above their 50 and 200 day moving averages and many of these new investors seek opinions on how to proceed. Notice that most commentators are bullish, and price movements do not appear to have reached extreme levels in comparison to past price movements. But now what do you do? If an investor buys in now they risk a drop in the currently advancing price but if they wait they risk missing out on the next let up.


This is a scenario that we believe is similar to today's situation.

It is our belief that if investing is too complicated the probability of success diminishes greatly. Too many investors seem to search for the easy, ‘can't lose' secret that will guarantee instant success, but those who understand markets understand that such a perfect solution does not exist.

There is no easy answer to the above scenario but our approach would be to analyze the situation in an effort to find the simplest solution. The following is not investment advice as we are not certified investment advisors and we do not know your specific situation, but rather it is an explanation of our opinion regarding the preceding scenario.

We believe investors are by far their own biggest enemy. Fear and greed seem to take over most of their decision making, and when faced with a scenario such as the one above, the fear of “missing out” is often overwhelming. It is true that an investor could miss out on a big opportunity if they do not move quickly but at the same time they could also risk a lot of capital.

Currently we are extremely bullish on silver and gold as we have been for many years, but we are not planning on adding to new bullion positions at this time. Why? We think many investors misinterpret a general statement of “being bullish” for meaning that prices will continue higher from the exact moment of receiving the comment until the ultimate expected high. If prices do not instantly head higher from the time of purchase many investors becomes scared, frustrated or impatient and sometimes sell before that next move higher does in fact begin.

We believe this is the one of the biggest flaws of the average investors' strategy. It is true that from time to time “mega parabolic price spikes” can shoot a particular investment into the stratosphere and anyone not with a previously invested position will miss out. But as a general rule markets move up and down as investors become over enthusiastic and over pessimistic. We try not to get caught up in the excitement of trading and chasing the market higher. Basically we like to average into positions when markets are not exciting and average out of markets when they are exciting.

Are we bullish on the price of silver and gold? Absolutely. Our portfolio is positioned to benefit from a positive rise in the price of precious metals. It is possible that short term prices may head higher but we are not adding to positions at these levels as we believe that in the short term this may be a risky move.

Prices have moved very quickly since August of 2007. They appear to have made a very strong move but the reality is that it has taken six months to happen. Interestingly, it seems as though most investors will note such a positive price movement and expect similar performance over the next week or two. Should they not get their expected price move, they once again become frustrated and impatient. This is an emotional hurdle that investors must learn to overcome.

In the long term we believe prices are heading much higher and we are therefore looking for pessimism in the precious metals market before adding to our positions. We sell into extreme optimism. We understand that we could miss out on an opportunity to have more invested for a short term move higher, and we are willing to risk losing that opportunity. Rather than trying to catch up to the current markets move we try to anticipate the next markets move.

We try to take positions when most others are not and sell when most others are not. If you are interested in learning about how we do so, we recommend you visit our website at www.investmentscore.com . Here you may also subscribe to our free newsletter.

By Michael Kilback
Investmentscore.com

Investmentscore.com is the home of the Investment Scoring & Timing Newsletter. Through our custom built, Scoring and Timing Charts , we offer a one of a kind perspective on the markets.

Our newsletter service was founded on revolutionary insight yet simple principles. Our contrarian views help us remain focused on locating undervalued assets based on major macro market moves. Instead of comparing a single market to a continuously moving currency, we directly compare multiple major markets to one another. We expect this direct market to market comparison will help us locate the beginning and end of major bull markets and thereby capitalize on the largest, most profitable trades. We pride ourselves on cutting through the "noise" of popular opinion, media hype, investing myths, standard over used analysis tools and other distractions and try to offer a unique, clear perspective for investing.

Disclaimer: No content provided as part of the Investment Score Inc. information constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers, including the staff of Investment Score Inc. or their affiliates will advise you personally concerning the nature, potential, value or suitability or any particular security, portfolio of securities, transaction, investment strategy or other matter.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents may or may not own precious metals investments at any given time. To the extent any of the content published as part of the Investment Score Inc. information may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Investment Score Inc. does not claim any of the information provided is complete, absolute and/or exact.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents are not qualified investment advisers.   It is recommended investors conduct their own due diligence on any investment including seeking professional advice from a certified investment adviser before entering into any transaction. The performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete.   From time to time, reference may be made in our information materials to prior articles and opinions we have provided.   These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current.  As markets change continuously, previously provided information and data may not be current and should not be relied upon.

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Comments

Alan T
01 Mar 08, 18:36
What to do?

Until we see real interest rates (interest rate - inflation rate)move from negative to positive I say buy or hold.

In the present economic environment with declining interest rates and rising inflation rates, I cannot see this even on the horizon.


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