Time to Buy Gold and Silver?

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 |  Includes: AGQ, GLD, GLL, SLV, UGL, ZSL
by: Yatin Karnik

U.S. gold rose on Tuesday, gaining $9.30, or 0.61%, to close at $1,524.90 an ounce. Gold prices hit an intraday low of $1,512.60 and a high of $1,525.80 an ounce. Gold prices are right at the Bollinger band's middle band. The relative strength indicator is sitting at 51.60.

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Silver futures prices for August delivery, now the most active contrast, gained a modest $0.71, or 2.40%, to close at $35.44 per ounce on the Comex in New York. Silver prices hit an intraday low of $34.40 and a high of $35.56. The relative strength indicator sits at 43.36.
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Yesterday, China raised its reserve requirements by 50 basis points. This change is effective June 20. This effort is an attempt to contain inflation, which is running at three-year highs. Combating inflation has been on the top of China's policy agenda for a few months. The CPI rose 5.5% in May from a year earlier, compared to a 5.3% gain in April. This is the fastest gain since summer 2008.

On the home front, for every stock falling, about five gained on the New York Stock Exchange, where 915 million shares traded hands.U.S. stocks closed moderately higher Tuesday on the heels of the China PPI numbers , with the Dow Jones Industrial (DIA) average up 123.14 points, or 1.03%, to end the day at 12,076.11. The S&P 500 (SPY) Index was higher by 16.04 points, or 1.26%, to finish the day at 1,287.87. Nasdaq (QQQ) added 39.03 points, or 1.48%, to close at 2,678.72. For every stock falling, about five gained on the New York Stock Exchange. Total volume was light, falling short of 1 Billion mark.

The correction in commodities last week is the first shaking of the tree that should not be ignored. In my opinion, it was an indication of chopping trading to come in both commodity markets and equity markets. I think the recent turbulence in equities and especially in commodities markets is not transitory. These head winds are here to stay in the short to medium term.

For the long term investor, both gold and silver are undoubtedly heading higher. But for a swing trader, silver will remain choppy for the short term. But for brave traders, silver poses an excellent buying opportunity to get long at these prices. I think silver and gold both will settle the week higher. For the faint heart, staying away from precious metals for the next couple of trading sessions might be a good idea. For aggressive traders, the best risk reward is presented by getting long exposure to silver.

If you believe in the gold and silver story, you can take advantage of the drop in gold prices by getting short exposure to GLD (iShares Gold Trust) or UGL (ProShares Ultra Gold). You can also benefit by getting long exposure to GLL (ProShares UltraShort Gold). You can take advantage of the drop in silver prices by getting short exposure to SLV (iShares Silver Trust) or AGQ (ProShares Ultra Silver). You can also benefit by getting long exposure to ZSL (ProShares UltraShort Silver).

Disclosure: I am long SLV.