Gold and Silver Selloff: Bull Market Technical Correction or Route?

by J.A. Thompson

September 23rd, 2011

Will this weeks precious metals blood bath present an opportunity for metals bulls to accumulate at bargain prices? Have the precious metals markets topped, and it’s now time to cash out?

It looks like we are in the midst of a much overdue technical correction, which will lay the foundation for the next leg up in the long, powerful mid-stage bull market in gold and silver that began around the years 2000-2001. It’s at stomach churning times like this when volatility spikes (VIX) to new near term highs and fear rules the day; I take a moment to remind myself that secular bull markets typically run in 18-20 year cycles. Lest you need reminding, this time it’s a secular bull market in commodities, bolstered by a massive government bubble and untenable levels of government and consumer debt, multiple rounds of Quantitative Easing and an utter lack of political willingness to honestly address the fiscal realities. This Keynesian induced, Central Bank enabled western government bubble is bursting worldwide…and it’s bringing most of the worlds fiat currencies(they are all fiat) to their knees. The fundamentals of this precious metals bull market have never been more intact.

Volatile precious metals markets frequently induce participants into cowering in their underground bunkers. Fear not bunker dwellers! Welcome this healthy technical correction, the precious metals had a phenomenal off season run up this summer. Certainly the oversold Dollar was due for a much needed rally in the near term. The recent extreme volatility in precious metals is merely a symptom of the temporary global flight to “safety” out of the Euro(as holders of Euro’s flee their collapsing currency) and into the almost equally unsafe Dollar. The question is: When all fiat houses are burning, where will the market look for safety in the long run? Gold and Silver.

Now is one of those particularly sweet opportunities during a bull market to exchange those suddenly more valuable fiat Federal Reserve Notes(FRN’s) for sound money! I intend to act quickly when the blood bath appears to have subsided, because the opportunity to spend those more valuable FRN’s to accumulate gold and silver at a discount will likely be fleeting! Watch and wait until confirmation a reversal is underway, and the market resumes the bullish trend for a few days before jumping back in for the next leg up!

I expect a powerful move up in gold that will likely test previous levels of resistance this fall. Look for the strength of the fall buying season in India, the ongoing debt collapse in the EU (Greece and Italy), and the FED’s Operation TWIST (flooding the economy with counterfeit money) to drive the price of gold to $2000 or beyond before the end of the year. Enjoy the thrill of capturing a deal…

10/8/11 Update:

Both the gold and silver markets appeared to be forming a base of support during the last week of trading.  If a bottom has effectively formed, we may see a nice rebound in both gold and silver in the coming weeks.

© 2011 Copyright J.A. Thompson CSA, CAS, LTCP, FLMI, AFSI, ARA, ACS – All Rights Reserved

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 utilizing methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.