Buy Signals in Gold and Silver

Aug, 14 2013

Gold and silver bulls have been frustrated by the “disconnect” between bullish underlying market fundamentals and bearish price action. The bullish arguments for gold and silver have been reported heavily in the financial press and don’t need great elaboration. They include:

  1. Massive Chinese buying
  2. Rampant central bank money printing
  3. Shortage of physical metal

Judging by recent price action, gold and silver traders are finally paying attention.

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Friday’s higher close triggered gold’s second buy signal in less than a month, confirming the first and making us feel much better about our decision to enter this market on the long side. The Midas metal is following through big time this week (Aug 12, 2013) – up $24 per ounce as we write.

This is great news if you followed our suggestion to buy December or February bull call spreads 3 weeks ago (Alert #28) or if you hold the December bull put spreads we suggested short as part of the long gold / short crude oil trade recommended in Alert #26. Our upside target remains a test of the long-term down trend, currently crossing at $1,500 per ounce. Continue to hold all bullish positions.

Is it Finally Silver’s Turn?

Friday’s price action in gold confirmed what the market was already telling us. Silver however, has not seen action this positive for a long time. Its buy signal on Friday was the first in many months. Like gold, it is up sharply today as well.

The poor man’s gold got hurt a lot more than its richer cousin during the recent downturn. If history is any guide, should outperform to the upside as well.

OE did not want to enter silver from the long side until we saw some sign of strength. Friday’s buy signal is exactly what we have been waiting for. The time has come to ease back into this market.

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If you don’t have bullish exposure to silver, now would be the time to consider getting some. Silver’s longer-term downtrend is still intact so rather than dumping a bunch of cash into bullion or ETFs we favor constructing low cost / high potential positions using silver call options instead.

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Lindsay Hall is Chief Market Strategist with commodities specialists RMB Group.  Get the latest futures and commodities commentary from Lindsay and the RMB Group on our Big Move Trades–an online report offering trading ideas backed by research.

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