Seasonally, the period from late June each year to early winter tends to be the strongest for the precious metals. This may have something to do with jewelry demand that starts to pick up in late June in advance of the Christmas season. It may also have something to do with South African metal production selling. South African hedging often lightens up during December as that nation heads to the beach during its summertime and end of the calendar year. This hedging then often picks up again in February, while nothing exceptional perculates within the jewelry sector until late June.

Thus, mid-February to late June tends to be far more negative period for the metal markets -- on average.

With the above overall cyclical tendency in mind, we have recently witnessed a most nasty reversal in gold price strength right during a time of year when we have often seen such reversals before (The reversal of gold from above $500 to around $385 over a one week span in Feb 1983 sticks in our head most prominently, but there have been many other periods of weakness that also began around this time of year). We have also witnessed a multi-month bull market in gold that had little supporting strength from the silver market. To us, this is a bad sign. Historically, the most robust precious metals bull markets have almost always seen silver in the lead of the move, not acting as the laggard.

Our Fibonacci bands drawn between the silver lows of 1993 and highs of 1998, as well as stretched down from the 1998 highs to a level that "fits" the rhythm of the 1998-2002 descent, both suggest that 3.75-3.87 remains in the cards for the white metal. This bearish view on silver is also largely consistent with our bearish view (previously espoused on several occasions) of copper in 2003.

Bottom line: There is absolutely no hurry to view the recent price weakness in the precious metals as a buying opportunity of any sort.

Non-subscribers are invited to access our February 2nd article, "Gentle Early Spring, but Rough Summer: Focus on Asia for Now," together with other past articles, by signing up for a quarterly Sandspring.com subscription below.

Disclosure Statement

Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.