Gold, silver shine as shorts cover
The long-awaited move in precious metals is underway as Wall Street banks and speculators are forced to buy.
It's finally happening. After being beaten down for so long, gold and silver are breaking out in what appears to be the first uptrend initiation since July 2012.
There are many catalysts. As I've written about recently, inflationary pressures are building in the global supply chain as central banks look poised to repeat the mistake of keep money too cheap for too long. Also contributing is a fresh rebound in global economic activity as factories spool up to replenished dwindling inventories. The U.S. dollar has been weakening.
But above all, Wall Street types are fueling the surge as overextended short positions -- bets against silver and gold -- are quickly being closed. That suggests the move higher is just starting.
According to the latest data from the Commodity Futures Trading Commission, gold shorts covered the equivalent of 2.4 million ounces of gold last week -- the largest swing since 2000. Also, the gold ETFs, including the Gold Trust (GLD), saw their largest fund inflows since June.
Still, bets against gold remain extended with small speculators holding their largest short positions against gold since at least the early 1990s.
Yet as speculators have built up their short positions, commercial traders (which include metal producers) have accumulated a large long position. Ostensibly, they knew that the price decline -- which took gold from nearly $1,800 an ounce last fall to just $1,179 in June, for a loss of some 35% -- wasn't sustainable.
I've been waiting for this turn for weeks. My original call for gold and silver in late July was a little too early. Now, it seems like everyone else is awakening to the potential in this area. I'm adding exposure back to my Edge Letter Sample Portfolio via a selection of mining stocks consisting of Helca Mining (HL), Golden Star Resources (GSS), Silver Standard (SSRI), and Lake Shore Gold (LSG).
As for the metals themselves, I'm adding the high-risk VelocityShares 3x Long Silver (USLV). For more conservative investors, the unleveraged iShares Silver (SLV) or the 2x ProShares Ultra Silver (AGQ) would be more appropriate.
Disclosure: Anthony has recommended USLV to his clients.
Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
MSN Money on Twitter and Facebook
Lets look at two investors: investorA and investorB. A took Anthony’s advice and bought gold at $1800 last year and B bought stocks. A is down 35% and B is up 15%- a spread of 50%. Assuming stocks stay flat nexy year (and I don’t believe that) but return 2% in dividends- then gold must go up at least 54% to $2300 for A to catch up with B. And if it were to go up to say $2600 and A sold- he ends up with a much higher tax rate on his gain (28%). A broken clock is right twice a day and it might be a good time to buy some metals, but Anthony needs to change professions…he is making astrologists look too good. Stick with Jim Cramer.
We have seen another correction in the Gold Bull market. Not the first by any means. Probably wont be the last either. Bet against the Debt in the world and own gold and silver. Save your money in metal and not dollars.
Let me ask this question. If you could bury a shoebox full of silver or a shoebox full of $20 federal reserve notes today, and 10 years later dig it up to spend, which box would you rather be digging up in 10 years.
Nice article. I've been in with both feet since 9/11. Foolish maybe, but I've been convinced for a long time that wars cause inflation and gold loves inflation. Obozo and Bernake's QE, 1, 2 & 3 are just icing on the cake.
You ain't seen nothing yet!
It does make sense when a commodity has lost 35% of it's value it may be bottomed out, but at the same time there's nothing to indicate that it's going up any time soon. Japan the worlds 3rd largest economy has been fighting deflation for 13 years with low rates and QE's, we may now be in the same boat. The last great inflation bubble we had in the 70's was caused by oil prices doubling and rising wages, unless these two factors are involved, runaway inflation is highly unlikely.
They did same in 70s better sell now if you can, This ride is headed for a derailment!!
Anthony sees a break up from the ceiling (dotted red line, in SLV chart) of the last 3 months downtrend channel.
But I see that we are still at the upper part (or ceiling) of the last 6 weeks uptrend channel. No break up there. In other words, tomorrow might see a bounce off that ceiling and the start of a new short (1 week or 2) downtrend.
Tomorrow will tell who is right.
I`ll buy gold and silver when we get a Republican president because the stock market
crashes.That`s a fact !
MR>Fat Cat;Don`t start calling me Regal today.I`ve read his points and I agree with most
of his posts.He`s a little too liberal for me.
Good point, goodluckgary....40 years later and it's a different ballgame.
Oil the Dollar and Gold, more so then Silver, along with inflation have a correlation.
If QE3 is dropped eventually and/or and tapering rises to the forefront; Others might wish they were holding some kind of Gold investment then.
Ahhh, today was a good day...And Gold certainly helped.
That is correct, most all Gold is a trade play along with Silver..
If you want to keep it, that's up to the holder or investor..
It made a great difference for us in the early part of the recession.
Today we only hold about 30% of what we did, and most investors (IMO) should hold some for a rainy day....And then buy umbrellas with it.
The patterns have changed, and you have to change with them.
Copyright © 2014 Microsoft. All rights reserved.
4 analysts downgrade the stock the day after a disappointing quarterly report.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.