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.

By Anthony Mirhaydari Aug 12, 2013 2:09PM

Comstock Images, JupiterimagesIt'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 anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​​​​​​​​​​ 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

Like us on Facebook: MSN Money and Top Stocks

Follow us on Twitter: @msn_money and @topstocksmsn

34Comments
Aug 12, 2013 4:20PM
avatar
For those of you still confused - Anthony M. is NOT an investor, he's a trader, and there's a big difference.  USLV is not an "investor" play, it's purely a high risk/high reward speculative proposition for traders.  Most don't have the stomach for it.
Aug 12, 2013 3:27PM
avatar

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.  

Aug 12, 2013 3:38PM
avatar

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.

Aug 12, 2013 4:32PM
avatar
How many gold has broken out articles have we seen from this guy in the last 3 months?  
Aug 12, 2013 3:59PM
avatar

Anthony

 

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! 

Aug 12, 2013 3:26PM
avatar
Right on V_L! There isn't enough gold on three planets to supply all the paper 'futures' and short contracts and the US itself doesn't have NEAR enough to back up anything. I'm thinking of starting up my alchemy lab again.
Aug 12, 2013 4:37PM
avatar
Buy Gold low, sell high is the plan, always.
Aug 12, 2013 8:13PM
avatar
To the (TBTF) To Big To Jail  J.P MORGAN CHASE  !   DIE CHASE DIE !
Aug 12, 2013 5:56PM
avatar

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.

Aug 12, 2013 7:15PM
avatar
While similarities between today and the seventies are striking, there is a BIG difference.
In the seventies, we were a creditor nation. Today we are a debtor nation. 

avatar
The Dollar's loss of purchasing power is slow but steady.
Aug 12, 2013 6:36PM
avatar

They did same in 70s better sell now if you can, This ride is headed for a derailment!!

Aug 12, 2013 5:33PM
avatar
You never the first bounce....Have you not learnt that by now?
Aug 13, 2013 12:24AM
avatar

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.

Aug 12, 2013 7:19PM
avatar
about the only thing he does well are nice charts - and he gets paid for making us jump - that's what news is about - stirring things up - not fact.
Aug 13, 2013 10:37AM
avatar

I`ll buy gold and silver when we get a Republican president because the stock market

crashes.That`s a fact !

Aug 13, 2013 11:11AM
avatar

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.

Aug 12, 2013 8:07PM
avatar

Good point, goodluckgary....40 years later and it's a different ballgame.

 

MAX... 

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.

Aug 13, 2013 7:44AM
avatar
I feel guilty sometimes buying physical metals....it kind of an unfair game....they are on the losing  debt end of printing paper, fudging numbers, manipulating markets. I feel bad for my monopoly comrades even if they are cheating to stay afloat. I feel guilty and I feel for their shame and loss.
Aug 12, 2013 4:42PM
avatar

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.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
278
278 rated 2
474
474 rated 3
641
641 rated 4
639
639 rated 5
663
663 rated 6
640
640 rated 7
499
499 rated 8
284
284 rated 9
122
122 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

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.