Watch for the Metals Pullback…

Dear Reader,

The turnaround in sentiment has been stunningly quick as retail traders and mainstream commentators, after ignoring precious metals for months on end, are suddenly interested in gold and silver. Even millennials are buying precious metals in the Robinhood accounts.

Long-term metals investors need to be patient and committed to their convictions.

Keep in mind, many metals investors were sitting on losses and couldn’t wait to break even and sell out of their positions. This is typical of market psychology after looking a position in the red.

With silver doubling in price from $12.22 in March to $24.63 by the end of July, you have to expect the latecomers to rush into the trade and act like they’ve been supporters all along.

Gold’s gains have also been dramatic, with the yellow metal surging from less than $1,500 an ounce in March to the $2,000 area in late July. Now we’re witnessing some of the same traders who were buzzing about Hertz stock a few weeks ago, now getting excited about gold and mining stocks.

The right attitude now isn’t unrealistic euphoria – thinking that gold and silver will literally double or triple from here within the next week or two. Instead, informed traders need to think like the big-money institutional investors do: they’re the ones who bought the dip in March and rode the metals wave all the way up.

But now it’s time to be realistic – this doesn’t mean dumping your metals and miners holdings, but understanding the potential of pullbacks and even a mini-crash in the event that the stock market crashes. This could happen due to another wave of coronavirus cases, or simply because mega-corporations aren’t earning as much as they did at the beginning of 2020.

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If a crash does happen and it takes gold and silver down with it, I believe whole heartledly the correction will be quicker and more of a “buy the dip” moment we’ve seen in metals in years. After such a strong move in precious metals, taking a breather would be healthy and likely a setup for the next leg up.

Just look at how quickly the equity market recovered from March lows. Of course, much of it was from stimulus, but also expectations of a recovery. From the initial onset of the coronavirus we’ve seen a reflation of the stock market, because of what’s known as recency bias: the 400% bull market following the 2008-2009 market crash is still fresh in people’s minds.

Also fresh in traders’ minds is the voracious dip-buying activity after equities crashed in March. Even brand-new traders will at least remember how quick people were to buy that dip. Now they’re focusing on both stocks and commodities, so any mini-crash in gold and silver should quickly be bought back up – and then some – by both institutional and retail traders.

In metals in particular, it might be so quick that if you aren’t sitting at your computer to actually trade it, you might even miss it.

With so much money being printed by the government, anti-inflationary assets are getting the attention they deserve. Gold and silver are the obvious ones, but we’re seeing interest pick up in Bitcoin as well:

Notice how the coronavirus crash that impacted stocks, gold, and silver also briefly brought Bitcoin down. The quickness with which the dip was bought shows that all pullbacks should be viewed as opportunities, particularly in inflation-resistant assets.

I’ve recently interviewed David Morgan of the Morgan Report where he discusses the third leg of this bull market we’re in. Given that silver has traded in the $50 area twice already – once in 1980 and then again 2011 – there’s credibility to the thesis that the bull run in precious metals is just getting off the ground now.

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