Drop Some Gold and Silver...Literally
05/13/2013 9:00 am EST
The short-term technicals are not in favor of silver and gold right now, and Mary Anne and Pamela Aden of The Aden Forecast recommend reducing your holdings for a while.
The decline in gold and silver was fast and sharp as panic selling set in, resulting in major technical damage. Currently, gold is technically bearish, and it could fall further.
We recently recommended lowering your metals position from 30% to 15% of your total portfolio, and we maintain that recommendation. Lower your positions in the shares and ETFs like SPDR Gold Trust (GLD), iShares Gold Trust (IAU), and iShares Silver Trust (SLV). Keep the proceeds in US dollars for the time being.
Primarily, keep your physical gold and silver core positions—that is, coins and bullion you plan to keep over the long haul, riding through periods of weakness.
As we said, gold is technically bearish, and it could fall further. We've already seen a drop similar to 2008. If gold can now hold above the $1,335 level, it'll be a first positive sign. A break below $1,300, however, would signal more downside.
As for silver, it has solid support at $23. If it breaks below $23, it could test the $20 level.
Normally, a steep downward correction will often retrace 33% to 50% of the previous bull market rise. So if $1,300 is broken, gold could fall to $1,280 (33%) or to near $1,000 (50%) in a worst case. That's why we're lightening up.
On the other hand, you can see that—despite the recent drop—gold is still in a major uptrend. Plus, there has been no real reason for a decline of this magnitude. Gold's fundamentals remain bullish, and nothing has changed.
Gold is still best hedge against currency debasement and inflationary monetary policies. This tells us this decline may likely end up being temporary. And once the market settles down, the bull market will resume its upward path. That's why we advise keeping a core position.