During this past summer there was a profound correction in gold and silver which was comparable to the correction that occurred in 1975. Around that time, gold prices dipped by almost 50 percent from peak to trough.
Since its March all-time high of $1,030 an ounce, gold has completed a perfect 38.3 per cent Fibonacci retracement, bouncing back to current price levels. Silver also followed the Fibonacci sequence, albeit with a deeper 50-percent fall from March peak to the trough. An important factor to take in to consideration is that price corrections are unlikely to happen again in precious metals. These were fairly brutal commodity price corrections, but the rebound has been quick in the case of gold and can only be around the corner for silver, as the two precious metals seldom move out of synch for long.
Last week investors queued in the streets of London to buy gold. Similarly, there was a dramatic rush in the souks of Dubai. Gold coins are selling at the highest premiums to spot gold price in 30 years, and stocks are running out. Gold rose sharply last week as well, despite a very sharp rally in the US dollar, lower oil prices, and collapsing stock markets. This is highly significant since the dollar and gold do not move in the same direction, and gold has a long pattern of falling with oil.
As for silver, the premium paid for bullion bars is up to 50 percent above the spot price, as dealers are running low and demand remains very strong. The silver premiums are higher than gold simply because silver stocks are tighter. The pull of the retail price is anticipated to increase the silver spot price as bullion dealers replace their stocks.
Silver prices may outperform gold by a factor of two again, as they did in in the period around 2000, and once the stock markets have ceased to fall, silver producers will most likely be highly recommended within the investment community, along with the junior gold exploration companies.
Let us hear your thoughts below: