Sensible v Sentiment

In a nutshell that is what we are witnessing right now.  We just witnessed gold and silver plunge below resistance lines on Friday night with the Gold price at USD1173 and Silver price at USD16.18 and calls for further drops to come.  Sentiment is well and truly low.  This is the time that canny investors leave emotion behind and look at their investment strategy.  A mental checklist of why you bought and what is happening now might look like this:

  • Insurance against a crash fuelled by unsustainable money printing and debt > yes the US just ended QE (for now but do I believe they can keep it that way?), but the 3rd biggest economy, Japan, announced on Friday they are INCREASING their QE from Y70 to Y80trillion ($750b) plus aggressively ramping up their state owned pension fund domestic share purchase program, and ECB started their QE the week before.  Stocks around the world surging on such news or buy back fuelled EPS growth, not business fundamentals. Tick.
  • Direct investment into Chinese and Indian economic growth > both are again rampantly buying with China last week buying 59.7t and on track to again consume 2000t or about 80% of global production this year (as with last).  Tick
  • Supply / Demand > well documented costs above current pricing mixed with falling production yields and fewer new discoveries, and demand just touched on above plus 21 month high Silver Eagles sales last month and frighteningly low silver inventories – all unchanged – actually getting worse…. Tick

Sentiment so often has little to do with sound logic.  The ‘sheeple’ will follow blindly.  The wise leave emotion at the door, check their strategy and stay strong or take advantage of low sentiment prices.