The Gold and Silver Thread

[Toro]

Silver may be topping here, at least in the near term. Over night silver brushed up against $50. It has since reversed and is now trading below $47 as I type.

Unless the silver bulls can reverse this trend and close strong, this looks like a classic top to me. However, there was also an intraday reversal at $41 and it did not signal the top in silver. But this had become a very crowded and frenzied trade and I think the risk of a significant decline is high. I don't think the bull market is over however.

 

[Toro]

I have put on a short on silver. With 0.2% of my capital I have purchased puts on the SLV with a strike price of $30 expiring in June at a cost of $0.12 per contract.

I am not predicting that silver will fall to $30. I just see a good risk/reward tradeoff here. Silver may be topping but it may not. If I am wrong I lose my premium paid. If I am right, the payoff is 4x or higher.

The silver bulls are doing a good job of trying to keep the silver mania going. Silver bottomed at around 10:30am. (The first moves of the day are often faded in the first hour.). It was then bought. The buying has been huge. At nearly 2pm, volume on th SLV was 141 million, near the all time high of 149 million on Nov 9/10. I imagine if you were to add up all the silver ETFs, we would already be at record highs. Given that a disproportionate amount of trading comes in during the last two hours, we will smash the trading volumes.

This is being driven by retail investors as the commitment of traders report shows fairly high but not sky high open interest. Also SLW is down today. Thus I think a top is near.

Having said that, I have tried to short silver a few times over the past several years and have usually been wrong.

 

[KissMy]

I have put on a short on silver. With 0.2% of my capital I have purchased puts on the SLV with a strike price of $30 expiring in June at a cost of $0.12 per contract.

I am not predicting that silver will fall to $30. I just see a good risk/reward tradeoff here. Silver may be topping but it may not. If I am wrong I lose my premium paid. If I am right, the payoff is 4x or higher.

The silver bulls are doing a good job of trying to keep the silver mania going. Silver bottomed at around 10:30am. (The first moves of the day are often faded in the first hour.). It was then bought. The buying has been huge. At nearly 2pm, volume on th SLV was 141 million, near the all time high of 149 million on Nov 9/10. I imagine if you were to add up all the silver ETFs, we would already be at record highs. Given that a disproportionate amount of trading comes in during the last two hours, we will smash the trading volumes.

This is being driven by retail investors as the commitment of traders report shows fairly high but not sky high open interest. Also SLW is down today. Thus I think a top is near.

Having said that, I have tried to short silver a few times over the past several years and have usually been wrong.

OMG Dude! You did not buy your option far enough out into the future. There really is a short term Silver shortage. JP Morgan may be forced to cover its massive shorts soon. I realize there is a lot of silver in the ground that miners can ramp up & get at to bring it to market. These miners have likely already sold those expected increased silver product into the futures market. A lot of this new production is likely factored in. It will take a year or more for these miners to put down this silver bull run.

 

[Toro]

This is a near term trading call. I believe their is a manic frenzy in the silver market that is not being confirmed in the gold market nor in the silver miners equity market. We have seen a bearish intraday reversal that looks to me to be a blowoff top. Intraday volatility was 8%, which is also often a signal of a near term top. Volume was huge. The SLV hit 189 million shares. And gold and silver tends to top in April or May.

Now I could very well be wrong which is why I allocated only a sliver of capital. But I think the risk/reward here is skewed to the downside.

 

[Mr Liberty]

I have put on a short on silver. With 0.2% of my capital I have purchased puts on the SLV with a strike price of $30 expiring in June at a cost of $0.12 per contract.

I am not predicting that silver will fall to $30. I just see a good risk/reward tradeoff here. Silver may be topping but it may not. If I am wrong I lose my premium paid. If I am right, the payoff is 4x or higher.

The silver bulls are doing a good job of trying to keep the silver mania going. Silver bottomed at around 10:30am. (The first moves of the day are often faded in the first hour.). It was then bought. The buying has been huge. At nearly 2pm, volume on th SLV was 141 million, near the all time high of 149 million on Nov 9/10. I imagine if you were to add up all the silver ETFs, we would already be at record highs. Given that a disproportionate amount of trading comes in during the last two hours, we will smash the trading volumes.

This is being driven by retail investors as the commitment of traders report shows fairly high but not sky high open interest. Also SLW is down today. Thus I think a top is near.

Having said that, I have tried to short silver a few times over the past several years and have usually been wrong.

I cashed out today. Short might be a good move. I'll wait until after Bernanke talks on Wednesday. Incredible movements today the volatility was too much for me. I'm short in the short term hoping to pick it up again @42.

 

[KissMy]

The US Dollar is very very weak & getting weaker. Lack of jobs, excess debt, excess spending means Bernanke will continue to buy treasuries keeping rates low. Inflation this summer will run somewhere between 20% to 35%.

 

[Toro]

I think the dollar will bottom this year, though maybe I'm wrong.

There are massive short positions in the dollar, and even more massive implied shorts, i.e. long silver. There could be violent moves when the Fed starts to hike interest rates, which could be sooner than many think. I expect many traders to get wiped out when that happens.

The parabolic move in silver is making a lot of veteran traders nervous that an already notoriously volatile market could get even more unstable as the gray metal races toward $50 an ounce.

While no one is calling a “top” to the market, sharp swings, like Monday’s $4 an ounce move in the May silver futures on the Comex division of the New York Mercantile Exchange, are not for the faint of heart.

May Comex silver settled at $47.149 an ounce, having reached as high as $49.82 and as low as $45.6450 on extraordinarily heavy volume. According to futures traders, volume in May silver was about 199,000 contracts whereas gold volume was 109,000 contracts. It’s a rare event when silver volume outpaces gold.

Since the beginning of this year, front-month silver futures prices have gained about 62%, outpacing nearly every other commodity market. In April alone prices have risen about 32%.

Gains like that make veteran traders nervous as healthy markets don’t go up in a straight line, and that’s what silver’s done. Many analysts are calling the move in silver “parabolic” and concerned about how steep and swift a correction could be.

That’s not to say the overall fundamental picture has changed. The concerns over fiat currency and hopes of industrial growth continue to underpin the market. However, because silver has risen so far, so fast without a pause several analysts are discouraging stepping into the market without having a long-term motivation to do so.

“If you’re looking to put some savings into gold and silver, don’t worry about the price. If you’re doing it to speculate where the price will be next month, I wouldn’t do it,” said Adrian Day, chairman and chief executive officer of Adrian Day Asset Management.

Several futures traders said for now they are steering any inexperienced clients away from silver because of the immense volatility and even some veteran traders said they are not willing to make any bearish bets directly in silver because of the volatility. ...

For the more fearless trader, Person said seasonally silver prices have fallen been mid-May and late June. According to the Commodity Traders Almanac, a book he co-authored, out of the past 37 years, if a trader has sold silver on May 13 and held that position to June 24, it has worked 24 times, or a 64.9% success rate.

While volatility sometimes gets a bad rap, Person pointed out the activity in silver is desirable to a high stakes traders. “Well, it’s a high stakes market and high stake players like it. With a $4 move you could make $20,000 on a one lot. If you’re right, you can have a very good month,” he said.

Person said to keep an eye on silver for possible signs of a top in this parabolic market. That can happen when a market reaches a new high, pulls back, then goes to test the high for a second time.

It goes there, consolidates and you see a pause, the market chops around and that’s when people lose money. They buy the second test,” he said.

In a parabolic market, prices often will return to where they were before the rally took off, Day said. But he doesn’t see silver falling all the way back to $15 area because there is strong underlying support, which wasn’t seen in the dot-com era, as an example of a parabolic market. “My rule of thumb is a 50% retracement. I would look to buy silver at $35 for the really anxious investor. But I might not buy it for clients until $25 or $30,” he said.

Kitco Exclusive News

 

[Synthaholic]

There was a short piece about silver on NPR today. One of the experts they interviewed attributed the rise in price to cell phones, computer products, and other technology which heavily use silver.

 

[Toro]

Silver fell to $44.80 in overnight trading and is now trading at $46 before the open. I'm looking for silver to fall to $38-$42, though I don't use price targets when trading. If I think I am wrong, I'll exit my position quickly.

 

[CoolBreeze]

I've been buying it since the 80's. You guys are far behind the time.

 

[Toro]

Interesting morning. Silver tested it's overnight lows of $44.70 and bounced, andis now above $45. I expect a rally into mid day and then we will see from there. SLW is getting hammered, breaking $40, but actually may offer a decent oversold bounce.

Gold is a bit problematic. After weathering the selloff in silver fairly well, it appears to have broken it's near term uptrend and is trading below $1500. Nothing serious but it looks like it could go back to $1475.

Pullbacks are healthy. Straight up parabolic moves are not. The move in silver as of late has been stupid. A significant decline then consolidation allows the market to build a base for a longer more sustainable move. The worst thing that could happen now would be for silver to quickly go back and retest it's high then fail. If that happens, I will get seriously short silver

 

[boedicca]

Toro - I'd appreciate your insights on the following article:

Yes, another crash is coming, unavoidable, just like 2008. Not because our totally dysfunctional government is collapsing into anarchy, thanks to the 261,000 Super-Rich Lobbyists. Not just because our monetary system is run by the Bernanke Printing Press Company. And not just because a soulless conspiracy of Wall Street CEOs cares nothing for democracy and the public interest, only for their stockholders and their year-end bonuses.

Another crash is coming soon because we’re back playing the same speculative games as we did for years prior to the 2008 crash. When we collapse, it will be because America’s leaders never learn the lessons of history. Never. In a BusinessWeek editorial, Peter Coy and Rouben Farzad described the bubbles:

“It’s as if 2008 never happened. Once again the worlds investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne. Pundits claim to have spotted price increases that are unsupported by economic fundamentals in assets ranging from U.S. farmland to Israeli biotech to Australian housing to Chinese cemetery sites. Commodities have soared. Global junk-bond issuance hit a record in the first three months of the year … this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems.” ...

2008 crash deja vu: We

 

[Toro]

I don't know. I don't think the financial crisis has ended. We keep doing the same things which got us in this mess in the first place. It worries me. The housing bubble was bigger than the tech bubble, and the policy response for the housing bubble was bigger than the tech bubble by orders of magnitude. Have the authorities learned anything? I have serious doubts.

So if you think the affects of the policy response will create even bigger problems than the housing bubble, what will that be? To me, that would be a currency crisis. I think there will be at least one if not three currency crises for the big three currencies - the dollar, euro and yen.

Maybe we get through this I don't know, but I think the risks are dangerously high over the next 5-10 years. This is why I think it is prudent to hold some gold and silver long term. However, like the ends of the tech and housing bubbles, people will lose a lot of money investing in gold and silver when it ultimately ends.

 

[JackDan]

I don't know. I don't think the financial crisis has ended. We keep doing the same things which got us in this mess in the first place. It worries me. The housing bubble was bigger than the tech bubble, and the policy response for the housing bubble was bigger than the tech bubble by orders of magnitude. Have the authorities learned anything? I have serious doubts.

So if you think the affects of the policy response will create even bigger problems than the housing bubble, what will that be? To me, that would be a currency crisis. I think there will be at least one if not three currency crises for the big three currencies - the dollar, euro and yen.

Maybe we get through this I don't know, but I think the risks are dangerously high over the next 5-10 years. This is why I think it is prudent to hold some gold and silver long term. However, like the ends of the tech and housing bubbles, people will lose a lot of money investing in gold and silver when it ultimately ends.

Toro you seem level headed when it comes to business decisions. I like it.

Overall, I feel many stocks/commodities/houses are still overvalued and a medium correction is due soon. Silver has long term upswing and I do continue to see it go up long term, but it has gone up too fast, as many things have in the last year, and I do believe it will have a small correction shortly. If it doesn't then we might have some bigger issues to deal with like you speak of.

 

[editec]

I love this place.

And discussions like these are the reason why.

 

[Ernie S.]

We saw out 10% correction last night. I'll buy at 43 if it goes that far, or a 40:1 GSR.

 

[JackDan]

i love this place.

And discussions like these are the reason why.

x2

 

[KissMy]

You should be buying Silver on this corrective dip.

 

[KissMy]

Decoding Bernanke's extended period comments. "PIMCO's Bill Gross Bernanke extended period January 2012" "Fed confirms will finish out $600 bln in bond buys. Repeats plans to keep rates low for "extended period"

I expect no Fed tightening until at least January 2012.

 

[Toro]

Is silver topping? Too early to tell but it may be, at least in the near term. It is having a hard time breaking through $50, and may be in the process of forming a triple top.

The behavior in gold says otherwise. Gold has performed extremely well and is yet showing no signs of topping. If gold is going to move higher it is likely silver will as well.

However the price action in silver had been manic. Options volume on the SLV has been greater than the SPY, which is crazy.

I have a very small short position here expressed in deep OTM puts. I may add to them if silver continues to falter or sell if silver moves to new highs.