Bought 3 PAA.TO 10DEC Puts 25.00 @ $2.27, Mark $24.75

US Dollar looks oversold (Figure 1). Of the few commodities that I follow, silver looks to be weakest (Figure 2). Thus, I look for a short based on silver. I chose Pan America Silver Corp. (PAA.TO) because it looks to be the weakest of the silver miners (Figure 3).

In particular, referring to Figure 3, I highlighted the current price moves versus six months ago. The price movements in the two boxes look similar. Thus I am looking for a big dive in PAA soon with these puts options.

I entered today as PAA is testing its $24.80 resistance. Next resistances are $25.00 (the gap) and $25.15 (38% Fib level in the July dive). As such, there are a couple of safety cushions in case this doesn’t work out.

My mental stop is $1.30 on the premium. Through time decay (around October if we trade sideway from now), price appreciation, and mostly a combination of these two factors. I figured I have about a month’s time to find out if it can break the $25.15 level.

Risk is thus ($2.27 – $1.30) * 100 * 3 = $291 + $25.90 commission = $316.90 = 3.3%. Once again, that’s higher than what I’d recommend. But that’s just the worst case scenario.

We should know soon enough if silver can break lower as it is trading against a descending trendline as shown in Figure 2.

U.S. Dollar Index

Silver

Pan America Silver Corp. (PAA.TO)

SLW: Long Entry Stop $8.15 / Exit Stop $8.05

The World Bank forecast released today is putting severe pressure on equities and commodities.

SLW is testing a long term support at $8.05, Figure 1 and 2. This SLW resistance correspond with a long term support of e-mini Silver at $13.85 (Figure 3).

(My entry stop just got triggered as I was typing this.)

Long entry stop: $8.15, intraday resistance

Exit stop: $8.05, long term support

Target: $9.60, bottom of recent acending channel

Reward / Risk = 1.55 / 0.1 = 15.5 > 5.0

As Bill noted in his weekly review, we only have 7 sessions left until the end of quarter. It would seem that the market wouldn’t tank in the last few days just so companies can paint a pretty picture that all is well and recovering in their quarterly report.

Update 11:38am: My exit stop at $8.05 was triggered and I’m out of the position. I’ll wait until end of the day to see if I should re-enter this position.

Update: I re-entered my long at 12:52 for $8.06. New stop is $7.90, a support from a couple weeks ago. I’ll move my stop up if we move above $8.20.

Update June 23: I was stopped out at $7.90 at 10:31.

Silver Wheaton

Silver Wheaton

Gold and Silver

Gold and silver prices exploding soon?

Gold and Silver futures

Gold is about to break its 200 day MA at 850 and Silver is testing its long term triangle. This could get interesting…

Breaking out of a month-long trading range for gold and silver?

mini Gold and Silver

Like the rest of the market, commodity traders have been going through some wild rides this year. If anything, their ride is significantly more thrilling because of the leverage.

Of all the commodities, Gold and Silver are my favourites. Even though I don’t trade the futures market anymore, I still keep an eye on them. Furthermore, I have a vested interest in precious metals because of my exposure in SLW.

As I have noted last month, I am long term bullish on precious metals like every one else. Heck, I think it’s a one in a life time investment opportunity. In times of crisis, hoard gold. And we are in as bad a crisis as ever. Investment opportunity doesn’t get any more obvious that this. Yet, the reality is that we are in an obvious down trend since the price highs in July 15. Coincidentally, we are exactly 4 months after that peak today.

Yesterday’s bounce of the market coincided with a reversal in the precious metal prices too. In fact, whereas today’s market retraced a bit, the gold and silver prices continued higher. They are up 39 and 0.736 respectively to 743.50 and 9.54.

I must say, I am not as confident in analyzing commodity prices because I lack an edge in the futures market. I merely look at the price and the e-mini volumes. The e-mini’s are just a small piece of the global precious metal market. There are the full-size futures, various exchanges around the world, the spot market, and what not. Then there’s the non-trivial relation of gold to US$ exchange rates, since gold is a world commodity but its price is based in the US dollar… and so on and so forth.

Anyway, I’ll make do with what I have.

Looking at the gold and silver prices in the chart, we are still well within a trading range. Could this be a turning point for them too? I have no idea.

The way I play the gold and silver prices is simple — I don’t. I just follow them. Even though we have shot up 70 points in gold, I think it’s too early to say if we’re truly on the rise from here yet.

However, not that I’m just rambling here, I do have a point. I think observing the prices of gold and silver around that marked trendline around 757 and 10.3 will be the best indication yet. Since the wild swings of recent prices in gold and silver have been spinning my head, I think we are approaching a significant breakout.

My Gold and Silver markets perspective, October 2008

The fundamental for $1000+ Gold is certainly in place, like the free money handout that’s been going on in many countries and the global financial panic. Conventional wisdom says in times of trouble, hoard as much gold as you can. I still believe Gold and Silver will break their previous highs from earlier this year.

Yet, I don’t have a Swiss bank account to hoard physical gold nor have I got the financial means to even purchase mint-backed gold certificates. I am merely a small time trader on the market. One rule of the tradebook I learned by experience is that it’s good to live by an independent perspective on the market, but don’t die by it.

Looking at the gold and silver charts though, it is blatantly obvious that we’re in a severe downtrend lately, for whatever reasons. The small rally this week may be tempting for some perma-bull or the fundamentalists. But I wouldn’t enter the commodities market at this point without some price-volume confirmation.

Indeed, if we look at the gold chart. We see that the current rally is probably a retracement. It has tested its resistance at 780 and backed down already.

Gold

Surprisingly, the silver camp is looking better. We are seeing a positive divergence in both the RSI and MACD in the latest down leg. This is caused by the more severe fall of silver since its high earlier. The silver down leg hasn’t had a chance to catch a breath like gold has. In fact, I would watch for an upside break in Silver regardless of the move in Gold. I don’t know would this be possible and sustainable, silver going up while gold going down.

Silver

Sometimes it’s easy to forget that gold and silver are two commodities with two different prices. That is because gold and silver price correlation is very high and have generally moved together for many fundamental reasons. However, there are periods of time when the Gold/Silver ratio make drastic changes.

The G/S ratio has been around 55 – 65 in the past 5 years. G/S ratio runs higher in times of trouble when people purchase gold as a safety shelter to store value. In the tech bubble, G/S went above 80 around 2003. The highest in the past 40 year occured after the 1987 crash, in 1990 when G/S got to 100.

Historical Gold/Silver Ratio (snatched from www.gold-eagle.com)

While the absolute price of Gold and Silver has been counter-intuitive, the G/S ratio picture still fits well with the norm. Notice the spike starting in August 2008? When the financial troubles we’re in now is written all over the wall? (Actually, the writing on the wall appeared late last year already, but that’s another story.) The faster fall of Silver lately could be explained with this. If that’s the case, then both Gold and Silver could continue its downtrend.

Gold/Silver price ratio

So what’s my point in this post? I don’t really have one. I am just saying what’s in my mind about Gold and Silver in this recent counter-intuitive trend. In terms of the prices, I am still bullish on gold and silver in the looong term. And definitely bearish in the short term. When will they move up? I don’t know, just observe the market. But I see silver to have more upside if it were to go up. It could easily creep up to $12 from here.