Another Healthy Correction For Gold And Silver March 18, 2012 [By Jason Hamlin]

I have received several emails this week asking my thoughts on the current price action in precious metals. Some subscribers are asking how low gold and silver might go in the short term and my honest response is “I have no idea.” Anyone that claims they can predict the short-term price movements in a market as manipulated as this one is blowing hot air. The banks can utilize leveraged paper contracts to take gold down to $1,200 and silver to $20 if they want to, in the short term.

However, they absolutely can not keep prices this low for very long, as free market forces will bring things back into equilibrium. In fact, recent take down attempts have been met rather quickly with buying from strong hands, much of it likely coming from China. While I still believe that the manipulators can create rather substantial take downs that scare weak hands out of their positions in the short term, they are becoming less effective and more impotent each day. This has been obvious in the charting, where buyers are stepping up to take advantage of these paper-driven artificial sell offs. I view this manipulation of paper prices as insignificant. Whether gold falls to $1,200 or only drops to $1,600 and bounces, I have no doubt it will continue to preserve wealth and continue to increase the purchasing power of those holding it over time.

I believe it is important not to give into emotions during corrections such as these. If you have been staring at your computer screen and stressing the price action this week, you are doing yourself a great disservice. I would suggest that your focus should be mustering the strength to stick with your convictions, ignore the noise and keep your eye on the longer-term picture. I see nothing wrong with hedging via put options or inverse ETFs, but I’ve found it easier and more effective to simply hold onto core positions and buy the dips.

I am convinced that gold and silver will eclipse their previous inflation-adjusted highs before this bull market is over. This means that gold will climb above $2,400 and silver above $150 at an absolute minimum. If we use more realistic inflation numbers such as those calculated by John Williams of Shadow Stats, the true inflation-adjusted highs are more than triple the prices listed above. Whether gold climbs to $8,890 and silver to $517 remains to be seen, but I believe we are likely to see the lower price targets listed above within the next 12 to 18 months.

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