Gold News

Making Sense of the Commodities Correction

And why you should be thrilled that it has happened...

SO THE commodities correction has occurred, writes David Galland, managing director at Casey Research.

Back in early April I suggested that the end of QE2 could knock the legs out from under the overbought precious metals and other commodities. But the metals continued higher. 

Several analysts opined that the market had already priced in the end of QE2 and thus, even after Bernanke's press conference, had decided it was go, go, go for higher commodity prices.

Yet, I think it is always a mistake to credit "the market" with any real predictive value. Reactive, yes. Predictive, no. Benjamin Graham had it right when he first penned the profile of Mr. Market as being a maniac, as likely to overpay for an asset as he is to sell too soon.

Put another way, if Mr. Market were actually in possession of a crystal ball, then gold would already be at $2,000 and silver at $75, and higher – because that's where the underlying fundamentals of the economy will eventually drive them. Just not quite yet.

So, what do I think about the current sell-off? First off, it was way overdue, and anyone who wasn't leveraged to the wrong side of the sell-off and who had built some cash should be thrilled that it has happened.

Silver, in particular, has been hammered – down over 30% at one point. Now that's what I call a proper correction. Is it safe to go back into the water? I have to believe that the speed and depth of the sell-off makes it all the more likely that we'll see a pretty quick bounce back.

While no one can know when, or perhaps because no one can know when (and we still have yet to see the actual economic consequences of the end of QE2), my suggestion would be to start buying in weekly or bi-monthly tranches of somewhere between 25% and 33% of the total cash you intend to reinvest in the metals and related investments. Already, the metals appear to stage something of a comeback, but that doesn't mean it's all blue sky from here.

By buying in tranches, you might not hit the exact bottom – but trying to hit the bottom is a fool's game.

If you didn't raise cash as the metals spiked higher over the month of April, or even paid up for gold, silver etc., don't kick yourself (unless you were leveraged to the upside, in which case I can only empathize and wish you luck).

Even if you paid $50 an ounce for your last ounce of silver, you will come out just fine in the end, because the monetary system of the US, and the world, is corrupt and degraded beyond redemption. It will falter and likely fail, and in time everyone will be scrambling to pick up their precious metals at substantially higher prices.

Don't want to wait for the scramble? You can start building your gold reserve today with a free gram of bullion when you register with BullionVault...

Doug Casey is a world-renowned investor and author, whose book Crisis Investing was #1 on the New York Times bestseller list for 29 consecutive weeks, a record at the time.

He has been a featured guest on hundreds of radio and TV shows, including David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, NBC News, and CNN; and has been the topic of numerous features in periodicals such as Time, Forbes, People and the Washington Post.

His firm, Casey Research, LLC., publishes a variety of newsletters and web sites with a combined weekly audience in excess of 200,000, largely high net worth investors with an interest in resource development and international real estate.

See full archive of Doug Casey articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals