How Much Upside Do Precious Metals Have?

San Francisco (Mar 6)  Tension between Russia and Ukraine are high, sending precious metals significantly higher as a safe haven bid.

The question of whether this has the potential of becoming World War III or if the conflict is just a mere diplomatic disagreement are now the two polar opposites pulling on precious metals’ prices as the significant rally Monday was countered with a sizable pullback Tuesday.

The trend in the metals’ prices since December suggest the market is taking the conflict seriously, but how much more upside should metal owners expect?

Gold and Silver – Emotionally Unstable

The metals markets are driven as much by sentiment as they are by rationality.  The general public is the best example of this as they generally allow their emotions to make trading decisions for them more than they do ration or reason.

Case in Point: When the public was most bullish the metals (and emotionally euphoric) it was leading up to the 2011 top, just before the metals’ prices peaked.  When the speculative public is bearish the metals (as they were in April and December 2013), the odds greatly increase that the metals are bottoming.

History shows that typically the public is wrong at key market turning points.

We discussed this most recently in our January 2014 ETF Profit Strategy Newsletter when we included the following chart and commentary as to why we were actually bullish the metals when everyone else was so bearish.  For one, the speculators (public) were extremely bearish the metals at the end of 2013 and the traditionally “smart money” was bullish, giving us a reason to also be bullish.

Source: Finance Yahoo