Gold and silver investors: Sell in May and go away

Precious metals (read: gold and silver) are trading near their lifetime highs, and a number of analysts now believe that prices have gone up too far, too fast, and that a correction is imminent.

There is definitely volatility creeping into the bullion market as investors booked profits yesterday after the recent bull-run and ahead of US Federal Reserve’s upcoming decision on whether or not to continue the massive cash injections into the world’s largest economy via the quantitative easing programme.

After making another lifetime high of above $1517 an ounce on Easter Monday, gold prices fell to under $1500 yesterday and downward pressure remains. Silver too, after hitting $49.25 an ounce on Monday, fell almost 5 per cent yesterday, to levels under $45 an ounce.

While yesterday’s corrections may be a direct result of the day before’s spikes, there’s no denying the fact that gold, up 31 per cent in a year and its poorer cousin silver, up 158 per cent in 12 months, have had a fantastic run over the past couple of years, especially after the US Fed first announced its QE program in the wake of the financial crisis.

The question, then, is whether now is the time to accumulate or dispose of? There obviously isn’t a correct answer to that, as it will depend on the investor/speculator’s objectives and circumstances, but experts now believe that with precious metals in uncharted territory, it will be perhaps wise to sit out the next few months.

Jeff Rhodes, CEO of International Commodities maintains that the next couple of months could see gold and silver selloffs at the global level. In an interview with Dubai Eye Radio yesterday, he said silver trading pattern was erratic and resembled the bubble scenario in 1980, when prices went from a high of over $50 per ounce to a low of $10 an ounce in a matter of a few weeks.

“Yesterday [Monday], it is reported that there were $1 bid/offer spread in spot silver, which is very, very reminiscent of 1980,” said Rhodes, referring to a few months in that year when Hunt Brothers, together with a small group of investors, tried to corner the world’s silver market, in the process pushing up prices to an abnormal high of $50.35 per ounce more than three decades ago.

“What we’re seeing at the moment in the [silver] markets are conditions very similar to those days,” he said. “Of course, after the high of $50 in January 1980, we saw $10 in March 1980,” he said. “I think the safest place now for silver traders is head for the nearest bunker or head for the hills,” he quipped.

“If you’re long on silver, sell in May and go away,” he advised.

While that advice may be, well, golden, investors will do good to remember the entire saying, which is: “Sell in May and go away. Try to remember to buy in September.” For, Rhodes still maintains his prediction of gold at $1650 an ounce within 2011.

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