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Gold and Silver are a Good Buy


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Gold and Silver are a Good Buy
By David Pappas, Archer Financial Services

Gold continues to be an exciting market over the past few years. We have seen gold futures make new historical highs this year in spite of the apparent lack of inflation. In fact, there is virtually no talk of an impending inflation risk, as almost everyone talks about the risks of potential deflation.  Despite the recent correction, because of the improving sovereign debt crisis in the euro zone, I remain extremely optimistic about the metals markets for the next few years.  

Gold futures made a high of $1219 an ounce in December 2009, only to retreat to a low $1052 before making a new all time high of $1266 in May 2010.   

Gold (COMEX) Daily Candlestick Chart
 
Silver has been the weaker of the two, lagging behind gold and other metals. It made a high back in March 2008 at $20.68 an ounce, before plunging to a low of $14.68. Although silver is the underdog of the metals, it has clawed its way back to $18.20. Many analysts believe it is ready to explode to the upside.  

Silver (COMEX) Daily Candlestick Chart

A good indicator that reflects gold’s strength is the recent inverse correlation between gold and S&P 500 futures. As the S&P 500 has sold off its highs that were made in April of this year, gold was able to hold relatively firm. I believe gold has great value at this price. Many are waiting for a pullback to enter the market, but will most likely they will miss the train. According to 68 economists that I follow, gold futures have the potential to reach $2500 or higher.

With the exception of the period of flight to quality liquidation, in light of a better financial situation in the euro zone, gold futures prices have shown a tendency to perform well on all types of news, both bullish and bearish. Much of the recent strength took place at a time when history has shown that the price of many commodities, including gold, often falls in times of economic weakness and reduced inflation worries. For example, as fears of the possibility of deflation are increasing, the price of gold futures was able to advance. Some analysts have argued that this apparent paradox was a result from demand from hedge funds and exchange traded funds that have temporarily and artificially pushed gold futures higher. Only some of the recent strength in gold futures can be explained by this thinking.                 

There are fundamental reasons that can explain the strength in gold. One possible explanation may be the explosive growth in monetary expansion in the U.S. and overseas. The Federal budget deficit in the U.S. has exploded due to massive expenditures for economic stimulus, the military and a variety of other spending. The worsening projections for the Federal budget deficit and the national debt are not supportive for the long-term outlook for the U.S. Dollar and remain bullish long-term influences for gold.                       

Gold futures remained in an uptrend all through sovereign debt worries in the Euro zone and are holding up relatively well now. Our fundamental and technical analysis continues to tell us that the gold and silver market will continue to advance over the next few years and that, in this period, new highs for the move will be registered in both metals.

If you would like more information about this article, please contact David at 1.877.690.7303 or send an email to david.pappas@archerfinancials.com

All charts above provided by APEX.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.


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About the author


David Pappas began his career on the Grain floor at the Chicago Board of Trade in 1997 while working for RJO’Brien.  Over the next several years Mr. Pappas worked in the risk department and traded for clients globally, which include Asia and European markets. He also worked in the Dow Jones pit where he was an assistant to one of the traders. During this time he filled orders for various customers, such as Calyon, Bear Stearns, and Fimat. David then went on and traded Dow futures and Options for the next 3 years before joining Archer Financial Services as an account executive.

David has been in the futures industry for 11 years. He specializes in options trading and breakout methods. David’s option trading methods include butterfly spreads, condor spreads, straddles and strangles and more.

David Pappas
Account Executive
Archer Financial Services
1.877.872.3348
david.pappas@archerfinancials.com

 

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