Perfect Storm For Gold and Silver Prices

Originally published on

“This year, investors have been engulfed by the perfect storm for gold, resulting from the Japanese earthquake and tsunami, Middle East and North African turmoil, credit downgrade warnings in the U.S. and the exacerbation of euro-zone debt fears, amongst others,” said Jeb Handwerger, editor of

This chaos has had a positive effect on gold bullion and now investors are finally jumping on board,” he said. “This may be a significant move for several weeks.”

So why should anyone even suggest the possibility for any sizable declines in gold prices?

If the market develops a “parabolic rise” it may encounter “severe downturns,” said Handwerger, who’s also a natural-resource analyst. “Investors in any asset must grow cautious as a trade becomes crowded.”

Tides can turn

Finding out just how much caution to take is a challenge in a market where, apparently, a bullish stance is most common and supportive news for gold prices is plentiful.

But silver is a good example of just how quickly a tide can turn.

For the month of April, silver prices were up 28%, then posted a drop of 21% for the month of May following a series of margin requirement increases that squeezed some investors out of the market. Read the May 31 story on gold and silver.

“The recent spike in silver, followed by a waterfall decline due to the raising of margin requirements, reminds long-term precious metals investors that one must be prepared to accumulate products when there is a panic and sell them when there is euphoria,” said Handwerger.

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