Gold & Silver Are in a Consolidation Phase

Gold & Silver
What we seem to be experiencing currently, is quite a pull back in all sectors, but precious metals gold and silver have fallen more than most.

Gold has shown weakness recently and then quite a fall in the last week, resulting in a price of $1,650 per oz currently – a far cry from the $1,900 that it hit at its high.

Silver has seen similar weakness and is currently just over $30 – a far cry from the $50 it hit at its height.

Consolidation and Pullbacks
In every market, on a very regular basis, there are dramatic pullbacks. I suggest that you start with reading my blog on the ‘Black Swan’ events, which I pointed out have such regularity that they are the normal way that markets behave.

This pullback certainly falls into that category, but it has the added normality of occurring without a major calamity elsewhere. In the current case, it only took the combination of a dumb announcement by the US Fed combined with a call for increasing the capital of European banks to set off this pullback.

Nothing Has Changed
The economic and political world is the same as it was two weeks ago and two months ago. Politicians can’t agree on anything. Sovereign debts are growing and are not sustainable, meaning that hard decisions will soon be forced upon the politicians.

The US Fed continues to play havoc with the economy, all in the name of ‘assisting’ in the economic recovery.

Life continues in a normal fashion.

What We Are Seeing
Stocks have essentially been in a bear market, a downtrend for some time now, and that trend continues. Temporary rallies or minor bull markets in the middle of a bear market, will produce a dramatic although temporary rise.

But sooner or later, the bear will reassert itself. That is what happened last week.

Precious Metals
Gold and silver fell in value at the same time as stocks fell in value. Nothing has ever gone in a straight line in either direction as long as markets existed. Gold and silver rose in value far and fast, and it is natural for a pullback and consolidation.

However, nothing has changed. I still believe that these metals could go in either direction in the short term, and buying in right now is a gambler’s paradise. It is a pure crap shoot and no-one can accurately predict which way they will go.

However, the metals still are the place to be. The only question is when to jump in. We suggest that you keep your powder dry right now, but be prepared to re-enter the market before the next big rise.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

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1 comment

I am a bit hesitant about this. As I said, gold (and silver) are both a bit of a gamble now. If you read other commentaries, the views are about equally divided between bullish and bearish. My view is that gold could go either way in a rapid move. I remain a believer in the long term value, but a bit of patience right now could provide a more attractive entry point.

The issue here is that gold has been moving up in value while companies that produce gold have been moving down in value. There are a number of ways to interpret this. For example, if the average world cost of producing an oz of gold is $650, then selling gold at $1,900, or at $1,600, or at $1,200 per oz is still enormously profitable. If you believe in the efficiency of the market (which I do not), then this disparity could be interpreted as a belief that the value of gold will fall.

There are so many intangibles in this calculation, that anyone can argue for either side of this equation with equal fervor. My opinion, is to do nothing right now and wait to see if the upward trend will continue.

One of the ironies of today’s situation is that gold and silver generally will fall when the market falls, and are not the contrarian investment that the pundits make them out to be. The reason is simple – when markets fall, or economies fall, people have less money to buy gold, so demand reduces, and the price falls.

As a long term hedge, gold is dangerous place to be. It is very volatile, it is at a high value based on historical norms, and as has been proven over the last several days, it can fall as easily rise.

By Larry Cyna

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