The short-term direction of gold and silver

Posted on April 27, 2007 , filed under Stocks | Print This Post

I expect that the prices of gold and silver will come under significant selling pressure so long as the stock market continues to post strong gains. Strong corporate earnings and the Dow’s recent rally over 13000 has placed investors attention to stocks instead of looking for alternative currency investments or investment risk hedges. The recent rally in gold and silver silver has placed a strong opportunity for profit taking in the short-term. Gold also failed to cross the key psychological price point of $700.

I’ve written in the past that the precious metal markets are relatively small in comparison to other investment choices. A few large hedge funds can exceed the entire gold or silver markets. The opportunity for institutional investors to engage in price manipulation may be evident by the increasing volatility in the spot price of the metals. While this is merely speculation, readers can note that the price of gold or silver can swing + or – 5-10% in a weeks time.

The fundamentals behind why gold and silver remain strong investment choices haven’t changed. Building a position as institutional traders exit positions is exactly how individual investors can benefit from the increase volatility in the gold and silver market.

I watching the spot prices of gold and silver closely and may decide to increase my exposure to a few gold and silver miners in my portfolio. A few stocks that I believe are already trading at attractive entry points are Coeur d’Alene Mines Corporation (CDE), Tanzanian Royalty Exploration Corporation (TRE) and Gold Fields Limited (GFI). I may decide to build a physical position in Silver if the spot price reaches under $12.50. A jump up to $15 from $12.50, which I expect by the second half of 2007 will yield a 20% gain.

My price targets for gold is $650-$660 as the downside and $720 in the upside, in the next 1-3 months. I see the downside for silver at $12 and the upside at $15 in the same time frame. Silver tends to follow the price movements of gold and is shaping up to be a better investment in possible percentage gain if a short-term rally in gold and silver materializes.

*Disclaimer: The author currently owns 15,000 shares of CDE purchased at an average price of $4.24, 5000 shares of TRE purchased at an average price of $5.50 and 500 shares of GFI purchased at $16.94.

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