By: John Fisher
Earlier this week, gold fell $25.10 to $1,158 per ounce as the price of silver declined by $0.57 to $17.63 per ounce. Today, 7/29, gold is trading at $1,167 and silver at $17.60.
We are approaching a capitulation point in the price of gold and silver. The sentiment on gold and silver has abruptly changed to the negative in a significant way. That bodes VERY WELL for those with a solid understanding of the technical and fundamental factors driving the market.
Capitulation is like spring cleaning. It cleans the market of the “weak hands” and redistributes to the “strong hands”. In all probability, this foretells that a big move up is imminent! This is most always the case.
So, where is the point of capitulation? How far could the price decline? Here are the possibilities based on the chart:
1. There is technical support at $1,150 (essentially where we are now). There is also support at $1,100 and $1,050. If you look at the chart, you can see how these levels provided both price resistance (when rising from lower levels) and price support (when falling from higher levels).
2. The good news – the support level at $1,000 is significant from both a technical and fundamental standpoint. Notice how it took repeated attempts from early 2008 until late 2009 for gold to definitively pierce $1,000. The good news is that $1,000 provided very strong resistance to the rising gold price and should serve as very strong resistance to a falling gold price.
The bad news – the gold price has never come down to test the $1,000 level of support. That is a probability we must be prepared for. If that should take place, people are going to be running for the doors – and we should be loading up.
3. Finally, the 200-day moving average price of gold stands at $883. It is not atypical for a rising investment to periodically retreat to test its 200-day moving average price. This would be viewed as the worst case scenario.
All Things Considered – John’s Commentary
Remember – ALL bull markets climb a “wall of worry”. And, it’s called a “bull market” because the bull is trying to buck you off.
Action to take: 1. Hold on. 2. Buy more on big dips. 3. Focus on why you bought in the first place. 4. Again, hold on.
What to buy: I have come across very low premium fractional European gold coins. Mexican 50 peso coins are the current lowest premium gold coins. In silver, premiums have moved up somewhat. 500 ounces in 100 ounce bars (5 bars) are the best buy shipped overnight.
Quote of the day: “If a private enterprise is a failure, it closes down – unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded. I challenge you to find exceptions.” – Milton Friedman
