To say that “serious damage” has been done to the metals complex… well, that’s the understatement of the year! This is the quickest, most prevalent drop I have experienced in my career. In the words of Mohammed Ali, “float like a butterfly sting like a bee.” Consider yourself stung.
It was good while it lasted. Yet old gold longs have now given back sizable profits that were years in the making. Worse still, fresh bullish entries are now severely underwater. I can almost hear the margin calls ringing.
I have two charts today – gold and silver. The bottom has fallen out of each. Selling intensified once silver broke $26/ounce and the gold bears are now in the driver’s seat, with prices under the $1,540 line in the sand. Gold’s drop is the largest two-day decline since 1983. Silver prices are off almost $5/ounce, or 18%.
Again, I’ve been in the commodity markets for 12 years and this move is the most furious, unforgiving move I’ve seen. And the scariest thing… it may not be over.
So… where do we go from here?
Silver
Silver Futures on April 14, 2013
Gold
Paper gold futures
With silver now under $26, I see the next support zones as $22, followed by $18/ounce. As for gold, watch for $1,350 and then $1,250 as your next two support levels.
Metals markets have a take no prisoner’s attitude. Until a definitive bottom is in, I suggest staying on the sidelines or proceeding with extreme caution. Buyers trying to catch these falling knives risk getting their hands sliced to pieces. If you have deep pockets, and a very long-term investment horizon, you may consider wading in. But I’d think twice. Even brave metals traders that bought the steep 1970s correction had to be very patient before they saw a dime of profits.
”At some point the price doesn’t matter……you’re just forced out of positions because it’s a cash thing.” This comes from Kevin Davitt, a very talented metals trader with whom I speak on a daily basis.
When fear, panic, sell stops and margins calls are the movers du jour… anything and everything is sold for no other reason but to raise money for said margin calls. Fundamentals and technical just don’t matter.
The COMEX and LME are open for business tomorrow. I’d give them a rest.
But if you really must – stay hedged, with either short positions in later months, or with options. Gold/silver buyers should look to sell calls or buy puts against long futures.
But really! – Maybe just let the dust settle first!
As always, I’m here to discuss specifics and give guidance. Give me a call…
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
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