Silver is dipping below $40 an ounce– meaning that it has declined about 20% from its peak– as the momentum players using margin, ie borrowed funds, bailed out. Silver could fall another $5 an ounce until the short term speculators are flushed out of the market.
Gold has lost only the amount of its early May spike to $1577 and is trading above $1520 because the major investors in gold were not solely momentum players. They have been making an investment decision that gold will be strong as long as central banks, endowments and those worried about the future of the US dollar maintain their positions. (Soros’ spokesman Michael Vachon has apparently taken his phone off the hook to avoid inquiries, and has not yet made any statement)
Most gold investors believe that gold has a limited downside , at least until interest rates begin to rise enough to cost them real money in carrying their positions. However, should John Paulson be found to be selling his vast gold position, there could be a considerable rush to the exits.
“We’re still in ther midst of a multi-year bull market in precious metals and I will be starting to buy again soon,” Ananthan Thangavel of Lakshmi Capital, emailed me today. ” I expect gold to hit $3000-$4000 an ounce in the next few years.” On silver, Thangavel believes SLW, Silver Wheaton, which simply buys other mines silver output and sells it on the world market, has “vastly underperformed on the way up,(and) should have limited downside during this correction.”
If the dollar rises in value once QE2 is over in late June, then all bets are off for another rally. Gold and the dollar trade in an inverse relationship 70% of the time. Commodities are sensitive to both the dollar and interestrates. If both start to edge higher, I’d say a correction in commodity prices will take place. There are plenty of extraordinay profits to be taken.
Re-blogged from Forbes