Here we go again — just how low can gold and silver go? That’s definitely the “$64,000 question” on everyone’s mind. In order to answer that important inquiry, we must first look behind two doors. The first door is technical in nature. It puts forth the various price support levels, wedges, triangles, stop-losses, and any of a half-a-dozen other significant and meaningful methodologies that will give indications as to when to buy and sell both gold and silver. In many instances, the technical gurus residing behind this door are in the hard money camp. Thus, they bring more than just technical analysis to the forefront as they usually present a very compelling argument for the ultimate replacement of fiat currency in favor of their cherished precious metal. Door #1 is also an entrance that I’ve opened up myself many times before and is certainly a place in which I feel very comfortable.
On the other hand, door #2 encompasses the fundamental approach. In this instance, no regard is given to all the little squiggly lines that are analyzed so diligently by the “techies.” Thus, only the “fundies” care that a new template for European salvation has recently been formed. This new rescue strategy proclaims that if the distressed country comes up short on collateral for the salvation loan (due to early bank withdrawals), they are being asked, or even demanded, to liquidate the national treasury which is housed in their gold reserve — a very substantial price to pay for remaining in a corrupt, failing union. Consequently, it is not a difficult stretch of the imagination to envision Portugal, Spain, Italy, and Greece, among others, finding themselves in the very same dilemma as Cyprus when it comes to being forced to sell gold. Regardless of what the asset is, the old adage of “first out, best price” seems to be clearly understood by the markets as witnessed by the most recent downward price action of the precious metals. In addition, as an Austrian economist, I’m also very comfortable standing behind door #2.
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