Gold and silver bounce back, rally likely intact

Gold and silver have rebounded on Monday after last week’s big drop.

Gold is trading above $1,500 per ounce and silver recovered to $36 per ounce. In all likelihood, last week’s horrendous performance was just a big correction because of why it happened.

It didn’t happen because of some change in fundamentals – the Federal Reserve’s monetary policy remains ultra-loose, Asian central banks’ march to diversify out of the US dollar continues, and Asian retail consumers still hunger for physical gold and silver.

Moreover, it probably wasn’t the last gasp and bust that marked the end of gold and silver’s multi-year bubbles.

In bull markets, violent corrections often happen and take prices to unreasonably low levels, at which point investors step in and jump-start the rally again. This is probably what happened last week.

It was a shake-out of the ‘weak hand’ bulls who jumped on the precious metal bandwagon just recently. The market had simply gone up too fast; it was bound for a violent correction.

Make no mistake, however, and know that gold and silver are indeed bubbles. In fact, the very nature of precious metals is speculative; that raising margin requirements on their financial futures can cause such a big move further proves this fact.

But like many bubbles, they continue to swell even as many participants realize they’re bubbles that will eventually burst. These investors continue to buy because they all hope to get out before the crash comes.