First time gold and silver investors tend to be a nervous lot.

September 16, 2011 – First time gold and silver investors tend to be a nervous lot. They are in unfamiliar territory and when prices take a turn for the worst they are vulnerable to all of the bears’ diatribe. The only advice I have for them is suck it in, don’t panic, and postpone judgment for at least a year.

It is in their nature – especially silver’s – to readjust their trajectory when the market starts to overheat, and that’s what makes them a sound investment. Whenever there is a flurry of activity prices are bound to move away from the trends – downward when the sentiment is to sell and upwards when it is to buy. Either way the activity soon dies down as the market clears and enters a period of consolidation.

Buyers who move in after a selloff won’t become sellers until their reservation price – the minimum amount it would take to convince them to sell – is met, so the price will quickly resume its upward trend. The net effect of a selloff consolidation is that it tends to cleanse the market of timid and quick-buck investors, putting the market on even better footing than it had before the selloff.

The current consolidation is a natural reaction to unrealistically escalating prices driven by speculators and poorly informed investors. When prices deviate considerably above the trend they surpass the reservation sell price of a large number of investors, flooding the market with new sellers. Prices will fall to some point where there are no more investors willing to sell at the highest offered price.

The ease of entry into the silver market makes it more accessible to speculators, especially the amateurs, and therefore is more susceptible to disproportionate bouts of buying and selling. But just as it is with gold, its the strong underlying fundamentals that ultimately determine the true value.

Wise gold and silver investing looks only to long-term growth. Successful investors set a reasonable reservation price to buy and they do so at every opportunity. And while they aren’t intending to become sellers, they set a failsafe reservation price to sell in case the market should accelerate out of control.

Other than that their reaction to consolidation cycles is that of Alfred E. Newman: “What, me worry?”

Shannon King

Senior Staff Writer –

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