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- Silver drops
- What’s a trend?
- Paying attention to
fundamentals
Yesterday,
commodities, and stocks – and every conceivable asset class you could shake a
stick at – all took a dive.
I
heard one talking head on CNBC shell out this wonderful advice: “sell half of
all your positions right now!”
I
won’t un-dignify the gentleman by revealing his name – but any long term
investors should run far, far away from any advice that tells you to liquidate
half of your investments. That’s just irresponsible.
At
the same time, it’s hard to remove personal bias and emotion from the equation
when everything is in the red for the day. It’s exactly this kind of
situation when you should take a deep breath, and look at the fundamentals
behind all of your holdings. If the fundamental reasons for owning gold
stocks, oil stocks or other securities remain the same – then you should look
at any dip as a buying opportunity.
External factors like daily price fluctuation, a bad hair
day or even a currency crisis in Europe might slightly change your long-term
investment plans – but not over the course of one day.
In the event that there is a single-day calamity that spells
doom for everything – it will be of little solace to know that you sold that
day vs. the next day or the next week.
Stocks
and commodities continued their slide this morning. Everything is down, but one commodity in
particular seems to be getting hit the hardest.
Our old friend argentum – as the Romans called it, or silver
as it’s known today – dropped nearly 5%
yesterday, and is down another 3.46% as of this writing.
Does a two day skid spell disaster for silver? I wouldn’t be much of a commodity analyst if
I told you to jump ship now.
Take a look at this 12 month chart for the one ounce silver
spot price.
I’ve
plotted three lines through the chart that represent the current regression channel
for silver.
What this chart means is that silver prices can trade as low
as $16 an ounce in the next day, and still be within the current boundaries of
the regression channel.
Looking at this type of chart with the regression channel is
a very basic form of technical analysis. To condense this analysis even further, we can say that the uptrend in
silver will continue until it stops. It’s
really that simple. There are thousands
of professional traders who literally do nothing but trade these types of up
and down trends. That’s because trends
tend to follow their own course until they stop, at which point a new trend
begins. If you can make a few percentage
points a day just by jumping in and out of trends, it’s not a bad living. It’s certainly not for the meek…
How would we know if the current uptrend has stopped? It would have to drop below the $16.50 mark
in the next few days, or break down below the regression channel further down
the road.
The
technicals are only one side of the coin. I like the fundamentals of silver for many of the same reasons that I
like the fundamentals of gold – and those fundamentals haven’t changed!
The world’s governments haven’t reined in their currencies –
and are continuing inflationary policies.
Greece
is in the news, but they’re not alone. Every major country on the planet has been treating their currency like its
own personal piggy bank. It’s a similar
tale of woe experienced by victims of the housing bubble. Home prices DON’T rise in perpetuity. And you can’t continually kick sovereign debt
down the pike forever.
There comes a time when home prices don’t rise. And there’s also a time when governments have
to pay the piper. Unlike an underwater
homeowner, they can’t just walk away and default on the debt. But they can inflate their currency.
The only way to protect wealth from inflation is to put it
into real assets. Gold and silver are
uniquely situated to preserve value – so until the U.S. Government and the
European Union, and the Bank of Japan and every other country in the world get
a hold of their debt problems, they’re forced to pay their bills with inflated
dollars, or euros, or
yen.
That’s the fundamental basis for investing in silver. And as long as the fundamentals stay the
same, we should look for pullbacks with relish, not fear.
If you’re interested in this trend, and want to invest in
the types of companies that will benefit from rising silver and gold prices, I
recommend taking a no-risk 30-day trial subscription to Global Commodity Investing.
If you have any questions about gold, silver or any
commodity at all, please drop me a line at [email protected]
Good investing,
Kevin McElroy
Editor
Resource Prospector