Gold and Silver Bullion Buying Opportunity for 2017?Commodities / Gold and Silver 2017 Dec 04, 2016 - 06:19 PM GMT
Gold and Silver prices have recently taken quite a battering with the price having fallen form a 2016 high of $1378 to its last close of $1178 which is not far from the low for 2016 of $1071 set early on in the year which is perking my interest on whether it could now be time to accumulate some more of the shiny precious metals that mankind has been obsessed with ever since we sought out the gold / silver shimmering signs of water on the horizon of the sun baked parched east african savanna as has been imprinted into our very DNA.
Firstly, gold and silver have never played a major part of my investment portfolio, usually amounting to less than 4% so not something that I look at often, usually only when I observe that the price 'could' be cheap for accumulation or expensive for distribution purposes. Also, I don't trade gold and silver often either, i.e. the last time I traded gold was over a year ago, so I am definitely no gold bug who tend perceive the hand of hidden forces at work in every minor price movement. Rather my objective is pretty simple which is to buy gold and silver when CHEAP and sell when EXPENSIVE, whilst in between I don't tend to pay much attention to either.
So the purpose of this analysis is to answer the question should I buy gold and silver bullion today, soon or leave it for even lower prices.
In terms of perking my interest in investing in gold bullion today, I would be seeking a potential reward of at least 20% over the next 12 months for running the risk of buying at the current price i.e. to hit at least $1400 within the next 12 months which would be a multi-year high. Whilst for the more volatile gold stocks and silver price, I would want a potential reward of at least 30%! So unless I see those sort of risk / rewards I'm unlikely to commit to investing, especially as the gold price and presumably silver and gold stocks are currently in a downtrend, so implies lower prices are more likely then higher prices, which is fine for investment purposes where the name of the game is not trying to catch the bottom but rather that the potential reward at the TARGET EXIT PRICE is the worth holding for a while.
So prime consideration is can I see gold and silver bullion achieve a minimum profit potential targets during 2017 or not. Whilst I will take a look at gold stocks (HUI and GDX) in a separate analysis.
Gold Price 2 Year Chart
Clearly the gold price is in a significant downtrend triggered off the break below $1200, the next stop is probably around $1075 and then 1045. Which implies downside is limited, i.e. at worse another $100 lower, or about 9% lower. Whilst resistant is clearly at just below $1400 at $1375. So current risk vs reward is about 17% reward against 9% risk. That's not particularly appealing.
What if Gold price fell to $1,100, that would be a potential reward of 25% vs risk of just 3%. NOW THAT WOULD BE APPEALING! So it's probably worth keeping a close eye on gold, perhaps even a limit order to buy bullion at or below $1125 for a potential 22% return against a 5% risk.
Gold Price 5 Year Chart
Does the five year chart back up what the 2 year chart is saying ?
Well it backs up everything the 2 year chart is saying and further confirms that $1400 is a very strong resistance level which if over come could propel the gold price MUCH higher, and the chart implies that a BREAK HIGHER would be more probable than a BREAK LOWER. So whilst we can't let ourselves get carried away by anticipating a breakout above $1400 and fantasise about hitting $1800 which would represent a 63% GAIN on $1100. Nevertheless the risk reward is better on the longer term chart then the 2 year chart, which acts to confirm that $1100 to $1125 are good levels to accumulate gold at given the risk / reward profiles.
What about Silver?
Higher volatility demands a higher potential profit of at least 30% else its not worth the risk of being lumbered with holding the shiny grey metal for possible several years as one waits it out for for a spike to offload into, where 1 year targets can easily turn into 5 year waits!
The silver price peaked at $21.23 and the last price of $16.8 represents a 26% potential, therefore to achieve a minimum target the silver price would need to break the last high and rally to at least 21.84 during 2017. Whilst possible at this point in time it does not appear likely. However, silver is IN a DOWNTREND that is targeting support in the zone $14.50 to $16.00 which is a pretty wide range, 30% from $16 extends to $20.80. So just like gold, the risk reward for silver is not quite there yet at current prices, i.e. $14.50 represents a 14% risk for a potential reward of 26%. Whereas buying at $16 would represent a 32% potential against a risk of 10%. again not that appealing for a 1 year investment. So on that basis I would be seeking to buy silver at BELOW $16 for a 2017 potential return of at least 30%, probably in the region of $15-$15.50.
Silver 5 year Chart?
In terms of long-term potential, $35 screams out from the chart whilst support lies along $14, so on the last close this would represent a risk of 17% against a potential return of 110%. Whilst from a drop to $16 would be a risk of 12.5% against potential of 120%.
Like I stated at the start, I am no gold bug, not particularly interested in gold and silver other than if it presents a good risk reward as it does every now and then. However today, at current prices, neither perk my interest to commit at current prices. Howsoever both are not far off from where I would consider accumulating. Whilst it is SILVER that I would eye as the better risk / reward profile for a spike to well above $21.80, probably well above $30, maybe as high as $35, though such a move is unlikely to materialise for several years!
So whilst I started this analysis with a view towards seeking to invest in gold and silver bullion for a 2017 return of 20%/30%, this analysis concludes in accumulating for maybe 3 or more years forward return in Silver of about 120% representing the best long-term investing risk / reward profile. So whilst 20% gold is achievable during 2017, instead I am being pulled in the direction of silver for a far longer term investment, a case of buy and forget until the silver price spikes to above $30. Which ironically is how I have invested and profited form silver in the past.
The bottom line is that there is no need to rush into either gold and silver, set your buy targets and accumulate. I plan to start nibbling on silver at around $16 for the long-run. Gold? it's the less volatile of the two, and more likely to resolve in a profit of about 20% during 2017 off of a sub $1100 accumulation price.
I will take a look at the gold stocks GDX and HUI in a separate article, and then the prospects for the crude oil price during 2017 as my forecast for 2016 draws to a conclusion, and not forgetting my stock market forecast for 2017, and if possible for where the US housing market could trend during 2017 as my mega three year forecast has come to an end, so ensure you are subscribed to my always free newsletter to get this analysis in your email in box.
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Disclaimer - I own gold and silver bullion, stocks, but no US housing.
By Nadeem Walayat
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
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