Gold and silver have taken a vicious beating – is the bull market over already?

The gold price has tumbled recently, leaving traders nursing losses – just a nasty correction or has the gold bull market run out of steam? Dominic Frisby takes a look.

In today’s Money Morning, we consider yesterday’s “correction” in gold and silver.

Perhaps correction is not the best choice of word. 

“Annihilation”, “destruction”, “extinction” all spring to mind as well.

Gold and silver, as a Norwegian football commentator famously said, “took one hell of a beating”.

So what happens now?

A brutal if useful learning experience for first-time investors in precious metals

Let’s run some of the numbers.

Gold’s peak came last Thursday at $2,075/oz, retested on Friday. Overnight it touched $1,862. Most of the selling came on Monday.

That’s more than $200-worth of gains given back in barely 24 hours.

I’d be more concerned if it weren’t for the fact that, so frothy was this market, we are only back at the levels we saw a couple of weeks ago in late July.

Speaking of frothy, let’s look now at silver. My ambivalence towards the metal of the moon, the metal of Monday, is well documented on these pages and the action of the last month, I think, exemplifies why I feel such ambivalence.

Friday we were touching $30. Come Tuesday night, we fell below $24. A 20% hit in as many hours. My sympathies in particular to anyone using leverage which, risky though it is, always seems to happen with silver. It sucks you in like that.

But if I’d said to a silver trader in early July, when silver was $18, that come August silver will be $25, he would have bitten your hand off. Yet here we are today with silver at $25 – a full 40% higher than it was a month ago – and most longs will be nursing losses. 

A cruel mistress indeed.

A minor detour for those interested in medieval chemistry

By the way – what was I talking about when I said the metal of the moon? Here’s a little bit of trivia for you.

Today we know of 90 metals or more. Many you’ve probably never heard of, let alone touched or seen. Things like cesium, nihonium, flerovium, moscovium, livermorium, yttrium or zirconium.

Until the 13th century there were just seven known metals – gold, silver, copper, tin, lead, iron, and mercury. 

There were also only seven known celestial bodies – the sun, the moon, Mars, Mercury, Jupiter, Venus and Saturn. Each metal came to be associated with a celestial body – gold with the sun, silver with the moon, iron with Mars, and so on.

There are seven days of the week too, and so did each metal come to be associated with a day. Gold’s day, of course, was Sunday, and silver’s was Monday. 

Today, Wednesday, is Mercury day. Or as the French call it, mercredi.

MetalBodyDay of week
GoldSunSunday
SilverMoonMonday
IronMarsTuesday
MercuryMercuryWednesday
TinJupiterThursday
CopperVenusFriday
LeadSaturnSaturday

Anyway back to the nitty gritty.

Is that it for precious metals? 

Is this it? Is this the end of the bull market?

It might be, but I doubt it. 

At this stage, I still favour the “healthy correction in an ongoing bull market” theory, one that washes out the excess and cleans things up. 

The same “printing money like there’s no tomorrow” conditions that were in place last week, are still there today. Only last night I ate out to help out with some of it.

Gold and silver were just too frothy. I had grizzled veterans, who should know better, on the phone telling me, “this time it’s different”. Money had worked its way all the way down the food chain: starting with gold, then to the large caps, from there to the mid- and tiny-caps. Doubles and triples were occurring on a weekly basis. Heck when the tiny-caps are rising you know something’s up.

Then the sister metals platinum and, especially, silver made a parabolic move – silver’s parabolic moves always come late in the cycle. 

These last few months have been as typical a precious metals boom cycle as you will ever see.

Over the next few weeks we can expect a rally – that looks like it has already started – followed by another nasty sell-off. Then we’ll get some smaller rallies and sell-offs and the market will gradually consolidate.

Then we want to see the market go to sleep for a few months and be dull and sideways-y, so that everyone forgets about it and loses interest.

What I really don’t want to see on this first bounce is gold and silver going back up to their highs of last week, re-testing them and failing. If that is the case, I might review and declare that the bull market is over. 

That action would be all too similar to 2011 when the last great bull market ended, and one of the most vicious bear markets in the history of man there followed.

With gold at $2,070 last week, I was looking for a correction back to $1,920 – the old high. I wanted to see that level re-tested and kissed goodbye. That way the old high – resistance – would become support. But yesterday it went through that level like it wasn’t there.

So we revise our targets. I’d like to see us eventually make our way back to the $1,780-$1,800 level and for gold to find support there. That would be a firm foundation for the next leg up.

Either way we now have some months of consolidation to get through.

There is always the possibility of course that gold and silver rebound and go straight through their highs of last week to above and beyond. 

But I find that unlikely.

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

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