Gold and Silver have been the hot trade over the last month. With both metals breaking down there was a lot of money to be made on the short side. There has also bee a great chance to make some money on the long side as both metals continue their bounce.
The only long trade I initiated since that sell-off was the break UP from the silver pennant when it failed. I closed that trade out at the end of that day (Thurs). On Friday we saw some interesting action with the market collapsing at the exact gap re-fill of the GLD and gold (the gap from the Monday morning open on the 2nd day of the major sell-off). I entered a short on that day using SLV puts, starting to scale into a position but my rule is not to average down on options. IF the market in the SLV closed above Friday’s high in the SLV then I will close that trade and take the loss.
I want to wait until the close todays to actually do a proper review of the charts. The purpose of this post is to simply answer the many emails I’ve received asking me to do another update.
There is no shame in saying “I just don’t know” which is exactly what I feel about the market’s current behaviour as it relates to gold and silver and it would be premature for anyone at this point to make such a call considering the price action.
What we cannot lose sight of is that the break of both gold and silver below their long term support shelves (discussed many times by me) on massive volume was clearly a bearish event. We don’t see events like that in a bull market. The fact we bounced was a positive for the bull side but we are still below those support shelves. The short I played on Friday was on the hopes of catching a reversal today but instead we got additional buying but the market is still reluctant to push above Friday’s high so I am not sure whether or not Friday was the tell and today was the bull trap. I don’t want to speculate.
There has been a massive rush for physical silver and gold around the world since the price collapsed. I think Peter Hug of Kitco Metals did a great job of summarizing this today in his market piece.
Anecdotally, a German friend called me over the weekend confirming that “small” investor retail demand for all types of physical bullion is in a manic stage. He indicated that there were currently 300 on-line bullion dealers in operation in Germany. Reminds me of 1980, long before cell phones and computers, when our bank had lines that stretched around the block, several times, with retail investors rushing to buy product. Then as now, the refineries struggled to ramp up production to meet the demand. I am not going to draw a conclusion on the similarities between now and 1980, but whether in the metals, stocks, housing or bond markets, the word “manic”, rings my bell.
This rang a bell me with to some degree. I remember my broker (and I’ve written about this story before) calling me approximately 2 or 3 days to tell me he had just left the Scotia Man Branch in downtown Toronto where the line-up to buy silver bullion was an hour long. He told me that he can’t recall ever seeing such a line-up. less than 3 days later we saw silver get sold off as the May 2011 highs were officially in. I then tweeted last week that my barber was talking up a storm about gold and silver, essentially repeating every conspiracy to me as I politely nodded and listened with interest as to how he nailed the permabull thesis as he recited it to me. You can’t do a Google search about gold and silver without being inundated with the supply, suppression or conspiracy theory memes these days as they have become so prevalent. Therefore, I don’t blame the public for jumping in on the physical side because in the course of their research all they read about is the conspiracy meme. Many of them admittedly don’t understand that there really isn’t a supply issue but a production issue that is affecting supply.
I’m not hear to tell you to short or go long either metal today. I’m here to remind people that it’s perfectly ok to simply say “I don’t know” at the moment and to wait for confirmation of price break. However, I cannot agree more with Peter Hug’s closing comment .. “whether in the metals, stocks, housing or bond markets, the word “manic”, rings my bell.”
We have the FED and ECB making key decisions this week.
Take the day off, let’s look at the charts tonight for any clues and I will do my best to provide both the bullish or bearish set ups that catch my eye.
As always, feel free to chime in with your own observations. The sharing of ideas is what makes us all wiser.
