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The Top 3 Rules to Understand About Gold & Silver Price Behavior
Over the past 10+ years of this gold and silver bull, I’ve seen gold and silver "newbies" repeatedly make the same mistakes. So I’ve decided to write this short article to help people more clearly understand gold and silver price behavior. There are 3 solid rules to follow and understand when buying gold and silver bullion and or mining stocks. Because of the lack of understanding of these rules, many investors unfortunately unload gold and silver assets at the exact wrong time, at the bottom of long corrections and right at the beginning of huge new legs higher. Back in mid-May, when I wrote that it was a very low-risk, high-reward point to buy gold and silver assets, virtually no one outside of the very small circle of seasoned gold and silver investors were interested. Now that gold and silver have risen considerably since that point and time, there is more interest than just a few weeks ago, but again, some newbies will make the mistake of buying into gold and silver now, and on any slight pull back, listen to the doubts disseminated by the mainstream media, and panic sell again.
I previously stated on August 16, 2012, the following: “The one thing I can guarantee, however, is that when gold and silver finally make new highs, and they will, some of the ferocious moves higher are absolutely going to stun a lot of people.” And I still stand by this statement. In retrospect, I don’t consider the recent moves in gold and silver to be part of the “ferocious moves higher”. That hasn’t happened yet and we're still a bit away from the manifestation of the scenario that will trigger these moves. Still, some of the moves higher in gold and silver that will happen over the next 1-2 years will be so rapid and shocking that to most people, they will seem impossible given the psychological damage done by the past 18-month gold & silver correction and consolidation period. And to those that pay too much attention to the mainstream financial press and not enough to the realities of the physical, not paper, gold and silver markets, these violent moves higher will be likewise shocking.
Because gold and silver have been so suppressed for an extended period of time the consequent defensive actions of exiting PM mining stocks and re-purchasing them at solid re-entry points has left many gold and silver investors weary and with a negative outlook ahead. Though patience is a virtue when holding and stacking gold and silver assets, this virtue is much more easily vowed than practiced, especially during volatile periods of price behavior upward and downward during an extended consolidation phase. However, those that are able to see through the volatility games of banksters will see something entirely different – a solid base for gold and silver’s next move higher to escape the banking cartel’s price suppression schemes. Thus, even though it is likely for gold and silver assets to take a breather this week and for a pull back in prices to happen before the upward trek continues, whether gold and silver are rising or falling, every gold and silver investor needs to understand the top 3 rules when holding gold and silver assets. So here they are:
(1) Volatility Does Not Equal Risk.
Far from it. In fact most volatility in gold and silver is deliberately manufactured by the banking cartel, and is manufactured in fake paper derivative markets in which prices are set with absolutely zero regard for the actual physical supply and physical demand determinants of these two precious metals. Furthermore, since banker cartel manipulation of paper gold and silver derivatives plays such a big role in price volatility, moves in gold and silver are often just as violent to the upside as they are to the downside after long periods of consolidation, as violent moves higher are often caused by short-covering of panicked hedge funds and banking cartel members that are forced to unwind shorts when the momentum to the upside becomes too great for them to suppress. Furthermore, after brief periods of very quick rises, another short-term correction triggered by day traders taking profits and/or desperate banking cartel members actions in paper markets does not mean the uptrend has reversed back downward again…which bring us to Rule #2.
(2) Lack of Patience is the Greatest Enemy to Buyers of Gold, Silver and PM Mining Shares.
With physical gold and physical silver, bankers deliberately create massive volatility in paper prices at times to discourage the uninitiated from buying physical and to try to goad those already in to mistakenly sell. With PM mining shares, the greatest mistake investors make with this asset class is to let the bankster created artificial volatility in mining shares discourage them into selling out of all of their shares right before the next great leg higher. While it is true that the vast majority of gold and silver mining shares in the junior resource sector are junk and inflated pipe dreams, even cashed-up, solid junior mining companies will be taken down in price during bankster raids on paper gold and paper silver and thus, patience with junior mining companies is essential to coming out on top.
One of the top performing gold stocks lost more than 50% of its value a few years before the onset of the Great Depression before going on a spectacular +1,258% run higher that ended in1939. Those that were impatient because they were unable to see the big picture of the importance of gold during periods of severe economic instability sold out when this stock corrected sharply, locked in losses, and received none of the spectacular gains. Many today will repeat this same exact mistake.
(3) Ignore the White Noise and Disinformation Anti-Gold/Anti-Silver Campaigns of the Commercial Banking Industry.
Clients that allocate money to physical gold and physical silver purchases or PM mining share purchases translates into lost revenues for fee-based managed money commercial banking and brokerage firms because this normally translates into money that leaves these firms and never comes back. Thus, the vast majority of commercial banking/brokerage firm employees have great incentive to prevent their clients from purchasing any gold and silver assets of any nature, including even robust PM mining stocks.
Thus, when the most robust PM mining shares are at super undervalued valuations and represent a low-risk, high-reward set-up, commercial banking/brokerage firm employees are likely to tell you there is ZERO opportunity in PM mining shares. However, when great runs higher in gold and silver assets occur, uninformed commercial banking employees are likely to inform you of this situation and goad you into purchases right before the next steep correction, as was the case when silver hit $50 an ounce last year. A sharp, rapid and significant correction in the first month of buying gold and silver is a lesson likely to keep many "newbies" from ever returning to the gold and silver markets in the future.
For those interested in a further discussion of the above 3 rules, please refer to the articles below:
In Gold, Silver, Diamonds, & Stock Markets, Controlling Perception is the Banker Weapon Du Jour
The One Personality Trait that All Gold & Silver Investors Need to be Profitable
We have the banking cartel on the ropes now and gold and silver will eventually break out to new highs. To prevent the banking cartel from executing the rope-a-dope on us as they have so many times in the past, now is the time for every citizen to stand up for his or her beliefs, to buy an ounce of physical silver and an ounce of physical gold, and to begin to impose our collective will upon the banking cartel for a return to sound money and free markets.
About the author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent investment research & consulting firm that focuses on gold and silver asset accumulation as a wealth protection strategy against the currency devaluation campaigns of all Central Banks around the world.
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Kim,
since your mid-May recommendation and making "handsome profits" does that mean you've asked subscribers to now sell and cash in those (paper) profits or are you now still buying and holding?
Follow the yellow brick road!
If physical is so great, why take paper as an exchange??? There is most certainly a paradox here. Please comment.
There is, but your never going to get some of these people to admit it, especially those people who think they'll be able to sell their PM money. I always thought people used money to buy stuff, but apparently you "sell it" now. When the money is in the form of a precious metal like Gold I mean. Hit the deck, incoming down arrows!
Holding precious metals is reasonable when real interest rates approach (or exceed) zero. The idea is to retain purchasing power through times of hyperinflation and the failure of fiat, not to buy stuff. It is "sold" because it has been outlawed as legal tender by the government and is taxed as an investment. You can't eat it, but you can't print it either. I hate that argument, as if someone would eat their dollars... but when worthless I guess you can wipe with them, the one advantage over gold. One day the dollar WILL fail as all fiat always has throughout history. Other commodities work too, gold is more convienient than most.
Most of us will never sell for paper. When the great hypeinflation starts...nobody wants to sell an oz for four grand when youll get 8 grand for it the next day. PM will become the only usable money.
Time frame please. 10 years, 100 years??
Because none of the predictions I have read over the past 5 years have yet to come true. Depression, hyperinflation, US$ collapse, euro collapse, war with Iran, closing of the Gitmo prison ... all sort of things and yet nothing yet. Not saying it won't happen but if that doesn't happen before I am dead, I won't have to prepare for it.
Hopefully never. Only fools predict timeframes. Many people believe the fourth turning started in 2007. Look up the fourth turning. An excellent read.
What would your sell your Gold for, or should I say what would you buy with it, because that makes a heck of alot more sense than saying " will never sell for," when your talking about gold being "the only usable money" like you are. Food perhaps?
Mostly I like the article and it makes sense. Just hate to read those ego enhancing parts about how smart the author is. Probably I could live without that.
"We have the banking cartel on the ropes now "
Really???
I thought we were just on hold until the German shoe drops for draghi!
Besides it is not ropes where I desire them, its behind bars..... haven't seen any of that yet...
Good thoughts.
Volatility is mostly a function of running stops, as in rat shit, government subsidized crimes. Not that I have an opinion.
"Silver is much too valuable to be used for money".....Lyndon Johnson, 1964.
My favorite Lyndonism, "Those guys could fuck up a two car funeral".
OK Guys, I got put down yesterday as clueless after being on this site for over a year. What? I'm going to put down a complete list of everything I own and where it is??. I've got plenty of scrap and physical metal most of which I can put my hands on if needed. The problem is, if I cash out on everything in family accounts with brokerage houses and convert it to physical I'll have to post armed guards when ever I leave home and maybe even house a couple of paid mercenaries. It is just too much to risk if the entire system goes down. I've got months of cash put aside too.
Now, what is the risk of stocks held in my name vaporizing compared to my risk of physical theft from marauding gangs and govt. confiscation? I know it is hypothetical as no one knows the future.
I don't want to have to have an assault rifle slung over my shoulder while siting at home and sleeping with it across my chest. I've got some physical abroad in a bullion bank too.
Coherent answers anyone? It is a family problem not just mine alone. I know there are geniuses here but some of them are crackpots in addition to being smart.
The trick is to hide it in secret places no one would look. Door jambs, safe in the floor under a rug under furniture, secret compartments in bookcases, under garage floor with new concrete poured over it, etc. Just write it down and put it with your Will so your family doesn't lose out if you croak first.
I feel your pain. The reality of wife, kids, job, etc. does intrude now and then, but not for the kids hiding under a blanket in mom's basement. It's easy to over-rate the experience level here.
That said, forty acres in the woods, with a still, some tobacco, and other smokables:), surrounded by like-minded neighbors and friends, could well be worth more than all the brokerage accounts in the world. The grown-ups here are hedging our bets. Enough said.
Do you think a society in which there are marauding gangs & govt. confiscation is one in which stocks held in your name will be worth much? If it gets that bad, how will those companies (your stocks) be operating/producing profits/diviends etc? It seems you're imagining a world in which everything collapses, but 'stocks' still carry on their own sweet way & (fiat) money is still respected & worth something - don't you think in that scenario, rampant inflation will be the norm?
Even if you are 'marauded', do you think that wouldn't happen if you didn't have PMs? They (The Marauders) probably wouldn't know in advance what there was to steal - so a gun would still be necessary to defend your plasma TV. The putative Marauders (if they're true to the Marauding principles) are really just violent, opportunistic robbers - they probably wouldn't think to take your house completely apart or dig up your garden, so the 'danger' of holding PMs (as opposed to any other good) seems no worse - do you worry about holding physical cash the same way? Now that can be taken (i.e. reduced to near-zero value) without anyone crossing your threshold. Just my take on things!
I prefer junk silver. That way, I can say, "Keep your hands off my junk!"
The correct response is, "Would you like to touch my junk?"
Unfortunately today they will don rubber gloves and fondle your junk at their whim, as well as youe wife and childrens. Some may enjoy this, but very few. The rest of us wonder what happened to freedom and liberty in our country.
following the general precession whilst entering a grand fourth turning the precious and golds value will trade mucho easier; but not with ratio favoring gold. it's all figured in
Good article.....if you are buying pm miners one other piece of advice is 'know what you own'....you'll be far less likely to get shaken out of a position.
Author is correct, regarding investors' lack of patience. Before suffering an unfortunate boating accident, I would purchase physical PMs, pile them up, and forget about them. Infinite patience is necessary, in this 'market'.
JS Kim is a huge resource for gold buyers. While this piece is more of a pepper upper, his work on GLD and other gold fundamentals is sophisticated and of great use when getting a broad picture of the suppressed farce listed as the gold price.
JS.. I like your suggestions 1,2 & 3 with respect to investment in general. I'm just not convinced that playing in this market will provide superior returns now that paper PM's are so prevalent. Reasoning as follows:
1. The USA, via the Fed, is currently trying to protect the reserve status of its fiat against all competing currencies. This includes gold.
2. Since the Fed has unlimited funds (what's a few zeroes on a computer) it can control any paper based market. Posting collateral to your broker is easy when you can print it.
3. Any paper market can be manipulated if you are the largest trader in that market.
4. The price of gold is now determined by the price of paper gold.
So... if you were the Fed and wanted to make sure your currency maintained it's value and reserve status, in this case against gold (which is used as a proxy against a number of other currencies), then couldn't you just sit on the offer and sell the crap out of the paper market whenever it went outside of your target band?
You just violated the "patience" principle.
The price of gold is now determined by the price of paper gold.
Only to a point, and that is when fiat buyers realize that the true value should not be measured in fiat, but in real asset value.There will come a time likely, when no one will sell physical no matter what the fiat price says.When the Con-fidence in that fiat is lost(keep on printing),no one in their right mind will sell their life rafts,for fiat.
G & S are bought for ONE reason, Insurance, and owning something that the value will never be ZERO.Unlike all fiat ever printed.
well said brother.
http://expose2.wordpress.com/2011/11/20/a-voice-from-the-dark/
a practical layout on the basic idea that you have to break the fear-greed cycle when you invest in anything, that's even after you gain a basic understanding of the market your investing in.
I bought GLD, USO and SLV in 2008. Both GLD and SLV are up over 200%. My USO up over 50%.
On the other hand....my house value has plunged 38%.
....my house value has plunged 38%...
Be thankful. Most SFRs in the central valley of CA have plunged 65-75% and the turbulence isn't over yet.
The saving grace is still the amount of actual equity a person has / had invested in the structure, not the paper gains the criminals locked in with their AIG bailout in 08.
Truth to tell, the average downpayment is all that's at risk and what it bought was a locked in rent payment in the form of the monthly servicing of the promissory note.
I could care less if my house has fallen 36% in value, nor do I care if it has risen 36% in value either (exception made for property taxes of course), because I'm never going to sell it anyway meaning I'm going to live in it until the day I die. The real value of a house lies in having a roof over your head, not in the value of what it's worth in money be it fiat or gold. Anybody who thinks they can protect the value of having a roof over their head by owning gold (or anything else for that matter) is just plain wrong in other words.
....my house value has plunged 38%...
Only against the fiat currency, in gold the price has not changed at all...
hence the word "hedge".
Too bad you didn't buy gold and silver.
Here are another three rules:
1. Do not buy jewellery. Buy gold. You will end up with at least twice as much gold in this manner instead of paying for sales taxes, overheads and labour.
2. The best way to increase the price of mining company shares is to buy physical metal. Buying mining company shares has the same effect as buying paper gold. The demand for physical gold and silver is reduced. This of course is not to say that mining shares are useless like paper gold.
3. Keep reminding yourself about what history has done to fiat currencies
I was out shopping last week and there was a stall in the shopping centre to buy gold... bracelets/necklaces etc
One need look no further than the actions of the Central Banks vs what they say regarding the barbarous relic. If a reset is coming (and they seem to think one is) then the Golden Rule will once more be in force. He who has the gold, makes the rules. Of course many americans think gold is gold, whether it is 24, 22, 20, 16, 14, 12 or 10K. There will be many lessons learned before the tribulations end.
In one short year, the manipulation "conspiracy" now is common knowledge and the frauds and thefts of hypothecated assets are now in full view and commonplace. The most interesting piece of anecdotal evidence, if true, indicates that the end game is near. If LBMA refuses to deliver millions of ounces of silver unless it is kept "within the system", you know damn well that there are numerous parties that think they own these ounces, and it's only a matter of time until a real default occurs.
Rule 2.1: mining stocks are not physical gold and silver and can be confiscated by governments, hence they are worthless.
Not a bad point but frankly, there's really *nothing* that can't be confiscated by the government, to include your land, you labor, your liberty, your life.
My agreement.
All depends on your resolve.
Rule 2.2: physical gold and silver are physical gold and silver, but they can also be confiscated by governments.
Urban legend.
Even when the government 'outlawed' gold ownership, there is only one instance of the government ever confiscating any gold during that entire time, and only from one guy. And even then, it took them awhile and a lot of court time to do it.
That whole policy was kind of a 'hey, if you want to, you can turn your gold over to us, but we're not going to go after you for it' wink wink kind of thing.
gold or silver confiscation is a declaration of war on the people by corrupted induviduals in power and should be recognized as such by the people and dealt with accordingly.
<physical gold and silver can also be confiscated by governments> How?
Will people just give away their gold/silver or will a government conduct a house-by-house search? It will be like a 55m/h speed limit.
It's not the confiscation itself, its the threat of what the government will do to you if you get caught using such barbarous and illegal things as substitutes for those super-awesome totally legal FRNs.
So no house-to-house searches will be necessary. Besides, there will surely be mega-cool rewards for snitching on your neighbor if you suspect them of engaging in such terrorristic and illegal activities.
So just like the 55 mph speed limit (which has nothing to do with giving a shizzle about your safety), potential confiscation is another in a long and growing list of reasons the government grants itself to extract more revenue from you, while simultaneously increasing control over your life, all under the color of 'law' and with the threat of violence upon your person and imprisonment if you do not submit.
at some point the government will want to mobilize gold. It can do that by taxing it at 80% and forcing all gold into hiding or it can declare it to be tax free and watch it come out and be useful in getting oil and other imports we will need.
Ultimately the NEED will dictate the behavior not some nutty paranoid plan.