Silver is up over 20% in just over one month. Gold is up
over 7%. Is now the time to buy?
Baron Rothschild in the 1700's is credited with the phrase, "The
time to buy is when there is blood in the streets". If this
is true for the right time to buy, then the ideal time to sell
logically must be when the opposite of that occurs.
But, what is the opposite of "blood in the streets"?
We can approach this dilemma two ways, literally and
Literally, the opposite of buying when there is blood in the
streets is something like selling when there is water in the woods
or selling when you are without oxygen in the sky...and those of
course make no sense.
Metaphorically, buying when there is blood in the streets means
buying when there is panic, confusion, and likely large losses
(blood being red as are losses). Now we are getting
Opposite of Panic and Confusion
Some words for the opposite of panic and confusion are
self-confidence, fearlessness, assurance, and euphoria. Now
we are really getting somewhere!
Buying when there is "blood in the streets" is similar to
selling when there is "euphoria in the air".
Euphoria, self confidence, and panic are words of emotion, and
an investor needs to understand the emotion of the markets in order
to understand its buying and selling opportunities, such as a time
of panic or euphoria.
We now have a buy criterion and a sell criterion as well as a
trading strategy which involves the emotion of the markets
Should You Buy Gold and Silver Now?
To answer that question we need to know simply the emotion of
the precious metals market (NYSEARCA:GLTR) and if there is
more blood in the streets or euphoria.
A very good way to understand emotions in the markets is to
utilize sentiment and opinion surveys.
Currently, sentiment readings for Gold (NYSEARCA:UGL) and Silver
(NYSEARCA:AGQ) that we follow have reached upward
extremes. This means the popular opinion is more
self-confident and assured than it is panicked or confused.
Based on Baron Rothschild's famous quote, now would not be the
time to pile into metals.
Should You Sell Gold and Silver Now?
Silver (NYSEARCA:ZSL) and Gold (NYSEARCA:GLL) have only reached
current levels of positive sentiment four times in the last 2
years. In October 2010, April 2011, August 2011, and February
2012, sentiment surveys were extremely positive on Gold and Silver,
as they are once again today. Not coincidentally all four of
these previous timeframes were significant tops in Silver and Gold
prices. Is this time different?
Based on sentiment the upside in Silver and Gold is likely
limited and if you hold gold and silver for a shorter or
intermediate term you should probably look at taking profits.
The emotion of these markets is short term euphoric.
Combining Sentiment and Technicals for a Buy
At the ETF Profit Strategy Update we use sentiment and technical
analysis to help us get ahead of market trends. We did this
with Silver in late July when sentiment was negative and price was
holding support around $26.
On 7/29 I was watching silver prices and informed our
subscribers in our Technical Forecast that, "The rising red short
term trendline support line currently just above $26 is also a good
stop loss spot and support line to watch. Good risk / reward
set ups such as these are what we look for in our trading."
accompanied that commentary showing the breakout, 200 day MA, and
trendline support levels. We also were watching sentiment,
which was at an extreme.
On 8/5 after that rising red support trendline held, I followed
up with, "For aggressive traders that are long SLV I have
identified two good stop levels with the horizontal support at
$26.55 as well as the lower rising support trendline at
$26.15." Prices rallied from there.
Sentiment for Gold and Silver were much nearer blood in the
streets levels than they were euphoric in early August. The
opposite is occurring now as sentiment has shifted to extremely
positive after the large August gains.
What's Next for Silver and Gold?
This week silver gave back some of its recent gains and may be
starting to react accordingly to its extreme sentiment
levels. However, with today's Fed announcement, Silver
and Gold are hitting highs again, so sentiment may get even
Longer term, many open gaps exist that risk being filled, likely
keeping pressure on Silver (NYSEARCA:SLV) prices. Fibonacci
resistances are coming into play on Gold (NYSEARCA: GLD) as
As long as sentiment remains elevated, Gold and Silver should
struggle to push much higher. The time to buy will be at the
next pullback to support levels along with a drop in today's
Profit Strategy Newsletter
provides comprehensive sentiment and technical analysis to identify
high probability trade setups across multiple tradable
and Assets. Right now Gold and Silver are overbought and
maintain high levels of sentiment. Once sentiment comes back
down to earth, we likely will get a better buying
opportunity. Our Technical Forecast, published a few times
each week, is watching the key support levels that could provide
great Gold and Silver buying opportunities again.
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