James has warned repeatedly during the recent ascent in gold and silver prices that a correction, particularly in silver, was possible, if not actually likely as the economy turned more visibly into the second dip of a double dip recession. When it actually happened, many stocks were hit even harder than the underlying commodities, putting their prices in stink bid territory. All those red numbers served as an advertisement to Louis that shopping season could be opening for discounted precious metals and mining shares. "I'd love to have another shot at stupid prices," he said. He compared Friday's close to the price drops in the fall of 2008 and reminded us that gold hit new highs in early 2009, and precious metals stocks followed along later in the year.
The Morgan Report Publisher David Morgan also predicted the correction, but that didn't make watching the downward jags any easier. "It's an opportunity if you take two deep breaths," Morgan said. "You need a long-term perspective."
Morgan doesn't think the spiral is over yet. "These waterfall declines can last about three days," he said. "And it takes longer to climb back up than it did for the prices to fall." He saw gold reaching $1,900/oz. again in about four months, but a lot depends on the credit markets. "The system has to clear the bad debt."
On the question of how to play the opportunity, Morgan counseled patience. "A lot of good values are even better values now," he said. "These are bargains, but these gifts won't stay bargains forever." He, personally, purchased a little more physical metal, but is waiting of the market to stabilize to reassess. "I sill fundamentally think silver and gold are an asset class to consider as part of an overall portfolio," he reiterated.
TraderTracks Editor Roger "Trader Rog" Wiegand was optimistic that although the Fed's announcement of an anemic operation twist was the impetus for the tailspin of an already weak market, the Fed could still stimulate commodities by announcing Quantitative Easing 3 on Monday or Tuesday. "If [Ben] Bernanke announces, $300, $400 or $500 billion in stimulus, we could see a major rebound next week," he predicted. "It wouldn't surprise me if silver goes up $10 next week based on technicals; Gold could go to $1,923/oz." Wiegand looked even farther out. "Some friends are looking for $2,000/oz. gold," he said.
Kitco Metals Analyst Jon Nadler saw a more fundamental change in the market. In his eyes, Sept. 23's volatility was the transformation of gold from a safe haven to a risky asset, a metamorphosis that started in mid-2008. He blamed the change on hedge funds that previously bought dot.coms and mortgage-backed assets, moving large sums of money into a small market, introducing extreme volatility. Like everyone else, he watched the price drop through the $1,705/oz. floor, and then the $1,666/oz., barrier and warned that it could hit $1,480/oz. or even the 2008 low of $1,250/oz. "A 35% correction is not impossible," he said.
Despite Nadler's prediction that the choppiness will persist, he is sitting tight on his 10% core investment in precious metals. "The end of the world has a habit of not happening," he said.