Daily Market Update 5/4/11

GOLD
This week we have seen gold drop from its May 2nd closing high of $1,557.50 to today’s close of $1,514.00 (less than a 3% drop) while we have seen Silver correct almost 20% in just five trading days. For the past month I have talked about the high volatility and risks in Silver. Yes, you need to own Silver as part of your investment strategy, but understanding and accepting that Silver investing can come with huge price gyrations is important. Gold needs to be the foundation for your precious metal investments. All precious metals are down today in sympathy with Silver’s sizeable drop, providing an excellent opportunity to add Gold, Platinum and Palladium to your holdings. The fundamentals are still in place for higher gold prices --- the dollar is weak, the debt problem is still a reality, and governments are continuing to look at gold as an escape from holding dollars in their reserves (see below).

Government’s continue to build up gold reserves as the Dollar sets new lows
IMF (International Monetary Fund) data shows Mexico, Russia, and Thailand added gold (now valued at about $6 billion) to their reserves in February and March as prices were setting record highs. Data on the IMF’s website shows Mexico added 93.3 metric tons since January (when holdings were about 6.9 tons) and Russia increased its reserves of the metal by 18.8 tons (to 811.1 tons) in March, and Thailand expanded assets by 9.3 tons to 108.9 tons in the same month.

The Wall Street Journal reported today that George Soros’s Soros Fund Management, one of the biggest hedge-fund firms in the world, sold much of its gold and silver investments over the past month because there’s less chance of deflation. This doesn’t make sense --- Silver has never been a deflation hedge.

IF GEORGE SOROS HAS MADE THIS PUBLIC, BUY GOLD NOW, and look for a good entry point for Silver. Soros knows how to play the media and he is a long term believer in Gold, so if he did sell all or part of his gold holdings he is probably looking to re-enter the market.

SILVER
Today and tomorrow are critical days, silver needs to hold above $40 to show support and from a technical basis this would mean it has achieved an inter-day reversal. If Silver doesn’t climb back above $40 by Friday, we could see $36 silver by next week. Silver hit $38.94 earlier today then turned back up, closing at $39.52, down $4.46 for the day. This sharp drop in Silver will ultimately be very bullish for the long term. The concept is to get the weak hands out before the next move higher. The fact that Eric Sprott has sold $35 million shares from his own Sprott Physical Silver ETF was released today. Sprott has been a long time silver and gold bull... it is essentially the core of his investment philosophy. The fact that at the $47 to $49 price range he sold a small part of his Silver holdings, is worth knowing.

Today’s Other Important News
Portugal agreed on a $78 billion bailout agreement with the EU and the IMF, making it the third eurozone member to do so after Greece and Ireland.

For many of my clients and friends who are Gold & Silver addicts, I am now posting on Twitter multiple times during the day and night.