By Jeff Clark, Senior Precious Metals Analyst
NEW YORK (
) -- First, the bad news...
The selling is probably not over.
The capitulation process may not be completed. Overall momentum remains down.
How low can gold and silver go? One can view all sorts of chart patterns and technical signals, and while a few will eventually be correct at calling the bottom, we prefer not to base our decisions on this type of strategy, starting with the fact that there are many different interpretations and too much variance in the predictions.
What we do know is that given that capitulation is under way, the selling will overshoot to the downside, just as surges can overshoot to the upside. Our response should be to prepare to take advantage of that situation.
Sentiment has shifted to negative.
All the headlines and stories about gold are negative and bearish. It will take a while for these investors to reenter the market, especially those who just sold for a loss. This won't be a years-long process in the making, but it likely won't happen in a month, either. The implication here is that patience will be required on the part of committed precious-metals investors.
Now the good news...
We've seen this before.
Remember the autumn of 2008, when gold fell 28%? In the spring of 2006, the price dropped 22%. And as we've pointed out before,
many proclaimed in 1976 that gold was over
when it fell a dramatic 47%.
None of these selloffs dictated the end of the gold bull market. That won't be the case this time around, either. A panicked shakeout is just that.
The fundamental case for gold is growing, not diminishing.
In spite of the downtrend in the price, the conditions that support the long-term bull market are increasing in importance. The U.S. and Japan alone will flood the world with almost $2 trillion over the next 12 months. Europe's problems have not been solved, and the Eurozone teeters on the edge of a recession.
And did you know that not one G20 country currently has a balanced budget? The current fiscal and monetary path of many major countries remains unsustainable, and no amount of selling by traders and hedge fund managers has changed that.