silver


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I’m looking to put on a silver trade tomorrow. It looks as if silver has bottomed, at least in the daily time-frame and is now due a bounce. I would love to see $17, but $16 makes the trade worthwhile with a 20%+ return over 3 weeks.

I’ll place a spread trade, to minimise [loss] risk and try and leverage any upside using options.

So below is the trade.

The time-frame is obviously critical. I’m looking at Week 4 expiry for this trade. This is the least capital that can be risked, for bigger trades simply add options.

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The gold/silver ratio is pretty high by historical standards. This suggests that a trade back to the mean/average might be worthwhile. Something along the lines of a pair trade: long silver, short gold.

The tricky part is duration of the trade. Things could get worse before they get better. But worth keeping an eye on.

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Jerry is feeling bearish on silver while I am just the opposite. I think the bear is done for the moment.

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While I wouldn’t be buying gold at current levels, silver is a lot more attractive. Bitcoin, not at all. What if, in your Armageddon situation your computer went down? You can always dig up your hoard from the back garden.

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Has silver reached a trading bottom? Possibly. I bought some silver 2/3 weeks back and currently am underwater by about 10%. If the credit expansion by the Fed continues…and continue it shall, eventually commodities will again soak up the excess liquidity flowing into the financial markets.

The 100yr ratio chart suggests that Silver recently achieved it’s high, and now we might see a reversion to the mean, which is approximately 50:1 This implies that Gold will once again lead and/or disconnect from the Silver price.

The 15:1 ratio is nothing more than a government implemented exchange rate. It in point of fact at the time grossly overvalued Silver as against Gold. This of course invoked Gresham’s Law, and Gold dutifully became scarce.

Anyhow, if Gold again becomes overvalued against Silver, then the Silver trade again becomes viable. Until then, I’d be staying away from an outright Silver trade. More possible would be Pair Trades of Silver Miners against the physical.

An ominous chart for the Silver Bulls.

The original post is here. Now I’m agnostic on the value of a pattern repeating. However, without a QE3 the inflation story in Silver may well be dead and buried.

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