Trading Comments: Gold, Silver In Oversold Condition

Traders have been on the sidelines watching this carnage in the precious metals. Hopefully, long-term accumulators have been scooping up the precious metals at these cheap prices. Like so many other downdrafts in this 12-year precious metal bull market, this one too will eventually be history and forgotten.

Both gold and silver have now reached an extremely oversold condition. A bounce is long overdue, and traders should plan to participate in it. I recommend leaving the sidelines.

Gold and silver have held support around current levels for two years. Given that they remain undervalued and are useful because physical metal does not have counterparty risk, it is logical that support will hold again. So we may be at – or least near – an important bottom.

One word of warning to traders. The US unemployment report to be released tomorrow may create a lot of volatility. Any downward spike will likely mark the final low of this long correction if it is quickly followed by upside reversal in precious metal prices.

Gold
1) The position bought at $1584.00 on March 4, 2013 was sold on March 18, 2013 at $1567.00, which was its stop-out point. Loss: $17.00

2) The position bought at $1605.00 on March 17, 2013 was sold on March 18, 2013 at $1597.00, which was its stop-out point. Loss: $8.00

3) Buy one position at the market. Gold is presently trading at $1546.00, so I will use this price for recordkeeping. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades at $1532.00.

4) Buy one position if the Comex spot gold price trades at $1,562.00. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades subsequently at $1,546.00.

5) Buy one position if the Comex spot gold price trades at $1,578.00. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades subsequently at $1,564.00.

6) Buy one position on the first Comex close in New York above $1,584.00. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades at more than $30.00 below your purchase price.

Silver
1) The position bought on the Comex close at $29.10 on March 8, 2013 was sold on March 11, 2013 at $28.80, which was its stop-out point. Loss: 30¢

2) The position bought at $28.65 on March 1, 2013 was sold on March 28, 2013 at $28.20, which was its stop-out point. Loss: 45¢

3) Buy one position at the market. Silver is presently trading at $26.78, so I will use this price for recordkeeping. Stop-out point: sell at an intraday stop-out point if Comex spot silver trades at $26.57.

4) Buy one position if the Comex spot silver price trades at $27.15. Stop-out point: sell at an intraday stop-out point if Comex spot silver trades subsequently at $26.80.

5) Buy one position if the Comex spot silver price trades at $27.50. Stop-out point: sell at an intraday stop-out point if Comex spot silver trades subsequently at $27.18.

6) Buy one position on the first Comex close in New York above $27.60. Stop-out point: sell at an intraday stop-out point if Comex spot gold closes in New York more than 50¢ below your purchase price.

Gold/Silver Ratio – On March 22, 2013 traders unwound at 56.03 the ratio sold at 55.0 at February 21, 2013. The loss was 1.03 points. I recommend putting this trade back on today.

Traders should sell the ratio (buy silver and sell an equal dollar amount of gold). I’ll use today’s NY close for recordkeeping. Stop-out point: Unwind this trade on the ratio’s first Comex close in New York above 59.4.

Comex options (options are high-risk and therefore not for everyone):
The Mar’13 Comex 32 silver call bought at $1.474, the November 5, 2012 expired out of the money.

Long the Dec’13 Comex 1800 gold call from $48.80, the January 31, 2013 Comex close.
Long the Dec’13 Comex 35 silver call from $1.603, the January 31, 2013 Comex close.

Long the Dec’13 Comex 1800 gold call from $31.80, the February 15, 2013 Comex close.
Long the Dec’13 Comex 35 silver call from $1.046, the February 15, 2013 Comex close.

Buy the Dec’13 Comex 1600 gold call at the market. Sell the two Dec’13 Comex 1800 gold calls, which will reduce the purchase price of this new call.

Buy the Dec’13 Comex 28 silver call at the market. Sell the two Dec’13 Comex 35 silver calls, which will reduce the purchase price of this new call.

I’ll use today’s NY close for recordkeeping for these option recommendations.