Cordier To TD Ameritrade: Gold And Silver 'Quite Close' To A Low

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Includes: AGQ, BAR, DBS, DGL, DGLD, DGP, DGZ, DSLV, DULL, DZZ, GEUR, GHE, GHS, GLD, GLDI, GLDM, GLDW, GLL, GTU, GYEN, IAU, IAUF, OUNZ, PHYS, PSLV, QGLDX, SGOL, SHNY, SIVR, SLV, SLVO, UBG, UGL, UGLD, USLV, USV, ZSL
by: James Cordier

Ben:

Welcome back to Futures with Ben Lichtenstein. After the breach of the 1,300 level in gold we've seen nothing but weakness. While gold has slowed the decline and appears to be consolidating and forming a bit of a balance around that 1,228 area many are keeping a close eye on it, as the dollars traded back to the 94 level off the recent 2018 highs posted on the 19th. For a closer look at what's weighing on gold, I want to welcome in James Cordier, President and founder of OptionSellers.com to Futures with Ben Lichtenstein. James, thanks for coming on this morning. Gold prices have been well, falling sharply in the last few months. What's behind the recent weakness that we've been seeing in gold?

James:

Good morning Ben. Can you imagine the gold bugs over the last 3-6 months watching developments in North Korea, watching the 3,000-point drop in the DOW earlier this year, and nothing, no response at all from the gold market. I think what most traders and investors have to contemplate is its price in U.S. dollars. So if you have a rupee, which recently hit an all-time record low versus the dollar, of course, the Indian nation is one of the largest consumers of gold. The Chinese Yuan has dropped nearly 10% in the last three months, and of course, their largest consumers of, second largest consumers of gold in the world. So the buying power in these two nations certainly trimmed a lot. So while here in the United States we see gold looking at pretty cheap levels, in the biggest nations that purchase gold, they haven't seen gold on sale and I think that has been a big reason why the gold market has done nothing but just kind of cascade to these lower levels over the last month or two.

Ben:

So itʼs kind of a combination of the lack of flight to quality bid coming into the trade and in terms of what you'd expect to see, also in addition to seeing some of these currencies lower, but is this contributing, is this why we're seeing you think less physical demand as well?

James:

It certainly seems to be that way. Here in the United States of course we have a stock market that seems to be doing either well or very well, and that takes some buying away from gold. A lot of the investors that might buy gold might be investing in bitcoin, that's another reason why gold may be not getting the bid that it normally would. But, weak foreign currencies I think is the biggest driver right now. So basically, looking for a low in the gold and silver market, youʼre basically calling for a top in the U.S dollar, and are we about to be there?

Ben:

James, the conditions that we're talking about here, do you expect them to persist or do you see a bit of a changing of the tides in terms of what's been happening here?

James:

We do see a change coming up in the U.S. dollar the strength of it. I don't think the Federal Reserve is just going to continue on a raise, raise, raise at every single meeting. As long as we have negative interest rates in Europe and we have slightly weakening economies in India and China, I think weʼre going to see the Federal Reserve balk at one of these upcoming meetings, and as soon as they do that, then youʼre going to see the dollar turn and then I think youʼre going to see a really nice rally in the gold and silver market. It could happen in September, it could happen in December, but I think weʼre getting, on a price basis, quite close to the low in both of those metals.

Ben:

So, if we do get the Fed to hold off on one of the rate hikes thatʼs expected right now that could stir things up a little bit. Can you talk to us about some of the option strategies that could allow traders to take advantage of the potential opportunity that would present?

James:

Sure Ben, we donʼt like trying to catch a falling knife like no one else wants to, however, you have the gold market trading at 12-month lows. You have silver in the $15 range which in many aspects is below the cost of production. What weʼre going to do is weʼre going to sell puts far beneath the market so that our timing doesn't have to be perfect. Goldʼs trading around $12.25 an ounce, weʼre going to sell the $1,050 puts, weʼre going to sell in silver the $12 and $13 puts and thatʼs going to give us a lot of room so if the market doesn't bottom tomorrow, weʼre going to have a good opportunity to be right eventually, with silver at 15 and going long inevitably by selling the $12 and $13 puts, gives you a nice cushion. In gold, I would love to be long that yellow metal at 1,050, and by selling the puts at that strike price thatʼs going to be your break-even and we really like the odds of doing that. We donʼt go for home runs with our company, we go for base hits and I think these are going to be two solid base hits later this year.

Ben:

Okay, well, weʼll keep a close eye on that. You know James, I saw the notes that you had sent ahead of the interview and you mentioned that silver is trading below the cost of production. Is this a regular event that happens and has it resolved itself yet?

James:

Well, we were just visiting under 16 now thereʼs been a lot of research done. A lot of silver comes from copper mining and the reason, also, why so much silver was coming onboard, was because the copper was trading at such high levels recently. A lot of investors who are in the metals are also probably hoping that copper continues its rally. Actually I donʼt think you want to root for copper right now. Actually, the red metal falling slightly recently, is going to take some of the additional silver mining off the table and is going to make silver supplies a little bit lighter later this year and the beginning of next. We do think that silver falling below production cost is a great time to get in. Is silver going to be back to 20 extremely soon? Probably not, but we do love this lower rate here and if youʼre an investor, thatʼs what you want to do, you want to buy low when nobody wants it and right now, nobody wants the metals and thatʼs another reason why we think itʼs quite close.

Ben:

Yeah and certainly found some support around that 270 level, but James real quick, Iʼm curious, why do you think that copper has come off so much recently? Do you think it's more U.S. softer housing numbers or some concerns and uncertainty associated with China?

James:

China, China, China. All the numbers coming out of that great nation of demand for commodities has definitely slowed down. We saw their PMI this morning and the whole idea about copper continuing its rally and now falling over and rolling over slightly is expectations for that economy and it does seem to be slowing somewhat and bringing copper prices down over the last month or two, might wind up helping silver later on. Weʼll just have to wait and see.