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The bears gave it their best shot last week. They drove the precious metals lower during option expiration, but the strong recovery on Friday by both gold and silver shows that the low prices engineered for option expiry could not be sustained. In line with my forecast for 2011, I expect that we just made the low prices for this year.
The correction in both gold and silver this month was deeper than I expected, but the key word is “correction”. The bull market in the precious metals has not ended. The destruction of national currencies is continuing.
After watching last week’s gyrations from the sidelines, it is time to again build a trading position in anticipation of higher gold and silver prices. Importantly, I do not believe that buying now would be “bottom picking” because there is enough evidence to suggest that an important low has been made in both gold and silver. In other words, buying now is not an attempt to identify a bottom. Rather, the technical condition of the market is much improved after last week’s action.
Gold
1) The position bought at $1344.00 on 21 January 2011 was sold on January 24, 2011 at $1336.00, which was its stop-out point. Loss: $8.00
2) Buy one position at $1326.00 or on the 31 January London AM fix, whichever comes first. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades at $1307.00. (updated 30 January 2011)
3) Buy one position on the first Comex spot gold close above $1342.00. Stop-out point: I’ll set a stop-out price after this position is filled. (updated 30 January 2011)
Silver
1) The position bought at $27.28 on 21 January 2011 was sold on January 24, 2011 at $27.375, which was its stop-out point. Profit: 9.5¢
2) Long from $27.934 bought on 28 January 2011. Stop-out point: sell at an intraday stop-out point if Comex spot silver trades at $27.675. If stopped out, then re-buy if the Comex spot price the same day closes above $27.74. (updated 30 January 2011)
3) Buy one position on the first Comex silver spot close above $28.48. Stop-out point: I’ll set a stop-out price after this position is filled. (updated 30 January 2011) View all Trading Comments >>
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