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Key lesson from gold’s big drop

Commentaries & Views

Gold retreated more than 5% yesterday, and silver dropped more than 15%. These are extraordinary moves that will have pundits galore telling you today what they mean and what will happen next.

I wouldn’t believe any of them.

Of course, with masses of them making all sorts of predictions, some will be right, and claim the temporary guru crown—until they get the next big move wrong.

Me, I’d rather admit that I don’t know, plan for the worst, and hope for the best.

But there is one clear lesson that can and should be drawn from yesterday’s price action: overconfidence goeth before a fall.

This does not mean I’ve turned bearish. I’m as bullish as I’ve ever been.

But I have been warning for weeks that after such an explosive rally, some correction and consolidation was increasingly likely.

I wasn’t urging anyone to bail out, but I have been telling folks to make sure they lock in their gains.

And many people have hated it.

How dare I say anything other than that gold has to keep shooting straight up to $3,000, $5,000, $10,000 and beyond?!

Just a day or two before gold and silver fell off this cliff, one person wrote to me in caps: “THERE WILL BE NO CORRECTION. BUY!”

My concern here is not to say, “I told you so.”

What matters is to stress how important it is to remain sensible, disciplined—and not to let the excitement of recent success blind us to the possibility of setbacks ahead.

As I’ve said before, I feel I failed in this regard, back in 2011. I was so sure that gold would not only hit $2,000 back then, but go much higher. I drank the Kool-Aid. So did many of my readers back then. And I don’t want that to happen to any of us again.

Hence my call to stick with strategies that may not maximize gains during a roaring bull market, but do allow us to make and keep more money as markets cycle up and down.

That’s exactly the disciplined form of speculation I model in The Independent Speculator. Mind you, I don’t just write about it; I put my own money where my keyboard is. I do my best to lead by example and show how it’s done.

But whether you ever subscribe or not, I hope you’ll remember this one, key takeaway:

Don’t get overconfident, no matter how sure you are of your arguments—nor how much recent price action seems to confirm them.

Caveat emptor,

L

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.