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Gold & Silver on the Verge of Something Spectacular

Guest Post by Chris Vermeulen of TradersVideoPlaybook.com

Gold and silver have taken more of a back seat over the past 12 months because of their lack of performance after topping out in 2011. Since then prices have been trading sideways/lower with declining volume. The price action is actually very bullish from a technical standpoint. My chart analysis and forward looking forecasts show $3,000ish for gold and $90ish for silver in the next 18-24 months.

Now don’t get too excited yet as there is another point of view to ponder…

My non-technical outlook is more of a contrarian thought and worth thinking about as it may unfold and catch many gold bugs and investors off guard costing them a good chunk of their life savings. While I could write a detailed report with my thinking, analysis and possible outcomes I decided to keep it simple and to the point for you.

Bullish Case: Euro-land starts to crumble, stocks fall sharply sending money into gold and silver which are trading at these major support levels which in the past triggered multi month rallies.

Bearish Case: Greece, Spain and Italy worth through their issues over the next few months while metals bounce around or drift higher because of uncertainty. But once things have been sorted out and financial stability (of some sort) has been created and the END OF THE FINANCIAL COLLAPSE has been avoided money will no longer want to be in precious metals but rather move into risk-on.

Take a look at the gold and silver charts below for an idea of what may happen and where support levels are if we do see money start to rotate out of metals in the next 3-6 months.

 

 

Over the next few months things will slowly start to unfold and shed some light on what the next big move is likely going to happen to gold and silver.

The price movements we have seen for both gold and silver indicate were are just warming up for something really big to happen. It could be a massive parabolic rally to ridiculous new highs in 2012/2013 or it could be a huge  unwinding of the safe havens as countries sort out their issues and the big money starts moving out of metals and into currencies and stocks.

 

Posted in Markets, Technical Analysis.

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By Guest – June 20, 2012

Share of World GDP from 1-2008 AD

Not quite scaled correctly on the x-axis, but interesting nonetheless.

Posted in Economics.

5 comments

By SurlyTrader – June 19, 2012

Noteworthy News – June 18, 2012

Economy:

Big-Box Space Remains Hard to Fill – Wall Street Journal

The death of the summer job – Washington Post

You get who you pay for – Economist

We’ve been brainwashed – Salon

Markets:

Waves bash sterling haven – Financial Times

Stocks: Central banks give markets a lift – CNN Money

Politics:

Greek Election Results: New Democracy Wins – Huffington Post

The global debt clock – Economist

GREECE VS. THE REST – New Yorker

Banks:

Banks perilously exposed to market downturn – Swiss Info

Spain bank rescue glee morphs into markets rout – Associated Press

 


Posted in Economics, Markets, Media, Politics.

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By SurlyTrader – June 17, 2012

Nigel Farage – Euro Titanic Hits the Iceberg

Love Parliament.  I think it is the way politics should be done – with a lot of yelling and anger. 

Nigel Farage is by far my favorite politician.  Would vote for him in an instant.  Follow his website to see more excellent rants like the one below:

Posted in Politics.

2 comments

By SurlyTrader – June 15, 2012

Buying Protection

With the Greek elections on Sunday, it does not seem like a bad idea to take a few chips off of the table.   You could sell out of your long positions and create tax issues or you could look at an overlay hedge with options.  The simplest method for protection is to figure out how long you want to protect for and buy a simple put on the S&P 500.  The problem with this method is that it is pretty expensive:

 

There are two items that you can note on this chart of implied volatility skew – the first is that near dated ATM options are cheaper than longer dated options.  The second is that out of the money options are significantly more expensive (steeper line) than ATM options.  This skew is more steep in shorter dated space and flatter in the longer dated space.  This means that if you are looking to buy shorter dated protection, you can sell out of the money options to cheapen the cost of that hedge.  If we focus strictly on December 2012 options, we can reduce our hedge cost significantly if we are willing to only protect the next 10% downdraft:

Your cost of protection goes from 7% to 3.1%, but then you are only protecting against a 10% downdraft.  If you are willing to take your upside out by selling a 10% out of the money call, then you can further reduce your protection cost to 1.6%.  Further creativity can reduce the cost significantly (or make it a net credit) by introducing put ratio spreads or calendar spreads.

Posted in Derivatives, Economics, Markets.

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3 comments

By SurlyTrader – June 14, 2012

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