Gold and Silver - Market Overview
Thoughts where taking a back seat recently, as I was pre-occupied with day-to-day life and have not posted an entry to the blog for a while now.
Times are changing though and no matter how busy you are the markets have moved so dramatically that they have made people take notice again. The movements have been covered widely on various media sources so I will not even try to touch them right now.
The issue is this right now… we were always saying that having precious metals in your portfolio would protect you (to a small extent) against falling markets because the correlation between the two is negative. This has not been true of late as both equities and metals were rallying the past few months and now are also both correcting at the same time. Many analysts are putting their views across as to why the equities are falling for this that and the other reason but why are metals doing the same?
Some analysts have offered the explanation that some portfolio managers have elected to take profits from precious metals to cover the losses from equities (which is valid to an extent). Some have gone even as far as to clarify that this is largely true because of the carry trade situation (where you borrow money in a low interest rate currency and invest in a high interest rate currency) unravelling where they are selling their metals to cover the FX losses. The closing of the carry trade position, means that the currencies like the JPY and the CHF are getting stronger and the ISK, TRY, AUD, NZD, etc. are getting weaker.
Where to from here… it seems as though the times have changed where all the things we were fearing in the passed about the future are starting to materialise. “The perfect storm” as a colleague of mine termed it.
An investor can only have two vies at this point in time: 1) that this is a correction which may last another couple of weeks and then we would continue with the rally or 2) that this is in fact a bear market!
In my opinion, the market is definitely overreacting and we will some ground being gained in the near future but we really need to make good choices in terms of asset allocation… more so than in the rosy past. The fact that Precious Metals have corrected is a blessing because this provides an excellent opportunity for those that did not have it to buy it at a fair value (if not cheaply).
In all honesty, I was starting to feel dizzy from the height of the prices of Gold and Silver a few days before the correction/disaster started and technically saw an opportunity to short silver with a leveraged certificate, this at a time when my colleagues were buying more for themselves (and clients). I got it perfectly right and made an easy 20% in a week (I bought before the peak). I sold the position when Silver was around $13 as I feel that at these levels, it may start going up again.
At the moment, it seems to be the right time to get back into the Metals scene with both feet and in these uncertain times, hold as much as you can in Precious metals. I think that Silver below $12.5 or $12 is a very good buy and Gold below $625 or $610 also.
Times are changing though and no matter how busy you are the markets have moved so dramatically that they have made people take notice again. The movements have been covered widely on various media sources so I will not even try to touch them right now.
The issue is this right now… we were always saying that having precious metals in your portfolio would protect you (to a small extent) against falling markets because the correlation between the two is negative. This has not been true of late as both equities and metals were rallying the past few months and now are also both correcting at the same time. Many analysts are putting their views across as to why the equities are falling for this that and the other reason but why are metals doing the same?
Some analysts have offered the explanation that some portfolio managers have elected to take profits from precious metals to cover the losses from equities (which is valid to an extent). Some have gone even as far as to clarify that this is largely true because of the carry trade situation (where you borrow money in a low interest rate currency and invest in a high interest rate currency) unravelling where they are selling their metals to cover the FX losses. The closing of the carry trade position, means that the currencies like the JPY and the CHF are getting stronger and the ISK, TRY, AUD, NZD, etc. are getting weaker.
Where to from here… it seems as though the times have changed where all the things we were fearing in the passed about the future are starting to materialise. “The perfect storm” as a colleague of mine termed it.
An investor can only have two vies at this point in time: 1) that this is a correction which may last another couple of weeks and then we would continue with the rally or 2) that this is in fact a bear market!
In my opinion, the market is definitely overreacting and we will some ground being gained in the near future but we really need to make good choices in terms of asset allocation… more so than in the rosy past. The fact that Precious Metals have corrected is a blessing because this provides an excellent opportunity for those that did not have it to buy it at a fair value (if not cheaply).
In all honesty, I was starting to feel dizzy from the height of the prices of Gold and Silver a few days before the correction/disaster started and technically saw an opportunity to short silver with a leveraged certificate, this at a time when my colleagues were buying more for themselves (and clients). I got it perfectly right and made an easy 20% in a week (I bought before the peak). I sold the position when Silver was around $13 as I feel that at these levels, it may start going up again.
At the moment, it seems to be the right time to get back into the Metals scene with both feet and in these uncertain times, hold as much as you can in Precious metals. I think that Silver below $12.5 or $12 is a very good buy and Gold below $625 or $610 also.
Be carefull in what you choose and how you choose to do it. I am!
Until the next thought… whenever that may be.
posted by Private Banker at 3/05/2007 07:57:00 PM
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