Precious Metals Markets at the Brink
Perhaps the most important question for precious metals investors is whether the recent sharp declines in gold, silver, and platinum are a "selling climax"—which will reverse powerfully to the upside and provide strong long-term investment opportunities—or are harbingers of even further weakness to come.
According to my chart analysis, all sorts of red warning flags are flying regarding the short to intermediate terms for the precious metals and their associated shares.
Gold, over the past couple of years, resembled a giant overhanging top. I believe that when a major topping formation such as that breaks down, the resultant market action is normally not consistent with a selling climax laden with immediate opportunities, but rather a red warning flag that high levels of caution would be in order.
There is no point in attempting to predict an exact number where gold will find a true and long-lasting point of reversal, but I do suggest that further important declines in the precious metals may take place.
Of all the past golden bull markets, the one which left the deepest impression was the phenomenal run from $106 in August 1976 to about $850 in January 1980. Huge fortunes were made in relatively short order.
One of the most important factors was inflation, which reached an annualized rate of 20% in the US by 1980. Although anecdotal evidence suggests some strong inflation, virtually all official government data suggest inflation is under control.
However, there are many economists who believe that inflation is more a matter of escalating monetary aggregates.