On Friday, Gold fell by a whopping $46 per ounce, closing at $1,161! Silver fell by 34 cents, a loss of about 2 percent. I was besieged by calls from friends wondering just what was going on. I'll now tell you what I told them.
The action in Gold and Silver was terrific from a longer-term point of view. Here's why: Gold had risen virtutally non-stop for the last 26 days. So, when a temporary panic, like Friday occurs, the price action scares away holders referred to as "weak hands", or those most prone to panic. In their stead, the acquirers are referred to as being "strong hands", meaning that they are true long-run believers NOT prone to panic.
Ultimately, for a market to continue its march forward, the process of replacing "weak hands" with "strong hands" is quite positive and NECESSARY! It also serves as an opportunity to those who are long-term oriented with a terrific entry point.
The fundamentals for both Gold and Silver continue to improve. The U.S. Mint has stopped producing BOTH Gold and Silver Coins. In addition, there are rumors, which I believe are credible, that both China and India are looking to clean out the remaining bullion offered by the IMF, or International Monetary Fund.
That entity recently offered to sell 400 tonnes of Gold Bullion and most of it has already been eagerly grabbed. If the rest is indeed scooped up by any combination of countries, Gold will be in EXTREME short supply!
The shortage is now so great that those requesting physical delivery of Gold through an exchange called COMEX, are reporting delays of many weeks and even months to receive their promised deliveries. This is unprecendented! In fact, COMEX has declared that it will no longer guarantee delivery of physical bulllion and has opted to deliver bullion in the form of an exchange traded fund called GLD. The sheer ludicrousness of this, is that GLD is nothing but "paper gold" anyway.
As I've pointed out in prior blogs, GLD may very well be a "shell game". I can't prove it because I can't audit it. The bona-fide auditors of GLD are accountants and may not have the slightest idea of what to look for! For example, how on Earth would an accountant be able to spot "counterfeit" bullion which is becoming very common?
So, while Gold and Silver may bounce around a bit before charging higher, I believe we have been handed a "golden opportunity" to enter this market, which I adamantly maintain is in its infancy.
But, before you DO enter this market in whatever form, keep in mind that volatility will continue to grow as it did during the terminal phase of the internet bubble. This will make this market veritably impossible to trade. And, I suggest that at certain intervals, one takes some profit "off the table". Ideally, this could be accomplished in such a way that you only play with "house money". In other words, I strongly believe that one can quickly recoup all of one's initial investment PRIOR to the ultimate top and, therefore, eliminate entirely the risk of loss.
The reason THAT's important is that it tends to reduce one's level of stress and reduce the liklihood of emotionally driven decisions!
I hope you found this essay informative and useful. I greatly appreciate all of you that continue to read "Marko's Take" and especially those that make comments in order to spark a bona-fide discussion. If nothing else, "free speech" is a vital right we need to ensure.