"So convenient a thing is it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do." Ben Franklin
I have been on vacation for the last few weeks, and, when I came back, I began to peruse the articles on metals on Seeking Alpha. And, after perusing 6 articles, I am sitting here scratching my head, wondering how you readers on Seeking Alpha actually take some of these articles seriously or even make money from them?
First, I see several articles suggesting that the "turmoil" in the emerging market is what has caused and will cause the metals to rally. Well, my question is; does anyone remember what happened during the "turmoil" of 2008? Metals did not fare so well? But, yet, this is just a "reasonable argument" that sounds good, but, ultimately, does not hold water when back-tested.
Next, I see the claim that the shortage of physical gold will cause gold prices to rise. Well, for how many years have we been hearing this argument? And, how much has it helped the price of gold? In fact, despite claims that the physical market is so tight, gold has been dropping for the last several years. And, truthfully, I can buy as much of the physical as I have wanted over the last few years. So, again, another seemingly "reasonable argument" that is completely useless when attempting to trade the metals.
The next "reasonable argument" I see is that the metals will rally due to the rise in volatility within the equity markets. Again, this is the "safe haven" argument I have heard so often. And, of course, it sounds so good, and everyone wants to believe that gold is the "safe haven" asset to which everyone runs when things are falling apart in the equity markets. But, unfortunately, if you actually take the time to review what gold has done during various periods of market volatility, the "safe haven" argument completely falls apart as it has both risen and fallen during periods of market volatility. You may as well go to Vegas with your money if you are "betting" on gold being the "safe haven" purely based upon equity market volatility. And, remember, when margin calls are made, all assets, including gold, are sold to meet margin requirements.
But, who cares about reality, as gold will always be viewed as a "safe haven," and those who buy it based upon that perspective really don't care if they are losing money. They are comfortable in their "feelings" that it will save them from equity market declines, and are simply not burdened by the facts.
And, yes, I can probably go on and on for several more pages. But, I think I have wasted enough of your time. Either you put your blinders on and accept these perspectives as gospel - and continue to gamble your money away, or you look for a better understanding of how the metals move and actually make money in an environment where the "blinders" crowd has lost money.
As many of you know by now, I view sentiment as the true driver of the metals. And, yes, sentiment is patterned and can be tracked to a relatively high degree of probability. While I will never claim to always be correct in my assessment of where the market is and will be going each and every week I have written an article, those that have read me for an extended period of time know that this methodology has correctly identified the movements in the metals much more often than not.
So, while I was on vacation, amazingly, it seems that the metals have done the same. But, I think the metals may be setting up many market participants for disappointment. While I have been pretty open over the last few months to the potential for the metals to provide us a break out and see gold going to the $1400 region and silver to the $26 region, after closely reviewing the silver chart, it has become a greater possibility that we are going down to new lows to create a potential long term bottom in the metals before we see a bigger rally.
I am not saying that the upside is completely 100% dead at this time. Rather, I think the downside has now become a bit more compelling, but it is not something that I would be trading heavily upon at this time. As I have stated, I have my long term long positions in the metals, as well as an intermediate term strangle on. And, I think I may add to the short side of that strangle on another move higher in the metals early in the week, and will be quick to stop out on the long side of that strangle. I will also place a stop on the short side of that strangle, based upon what I am about to tell you.
For quite some time, I viewed the 123GLD region as a big upside trigger. But, not only did the market have to surpass that level, it had to do so in convincing fashion. And, based upon the set up I see in silver, I am not quite so confident that it will.
For now, I see silver's main resistance between 20.39-20.68. If it can spike through the 21 region, then I will be out of my intermediate term short positions, and expect a rally next to the 23 region, on its way to the 25-27 region. However, I think we have a good chance at seeing a roll over from the resistance region, and a roll over below the 19 level opens the door to the 16-17 region for a potential end to this 3 year correction.
Additional disclosure: I also own a strangle on GLD at this time, and will trade it as described in the article.