Move To Higher Gold, Silver Prices Just Starting

It looks like an important low is firmly in place. We got the sharp rally in gold and silver that I was expecting, but the move to higher prices is not over – far from it. I think it is just starting.

The question now is whether we will see a pullback that will offer a low-risk opportunity to add to our positions, or whether gold or silver will just keep climbing. You can see that I have already been addressing that dilemma by not adding to our silver position after being stopped out twice. But given that we also own options, I did not want to be too aggressive.

With gold still in backwardation, it may be that we are still far away from the price level at which the precious metals begin any significant pullback.

Gold
1) Long one position bought at $1212.50 on July 5, 2013. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades at $1,265.00.

2) Long one position bought at $1,244.00 on July 9, 2013. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades at $1,310.00.

3) Long one position bought at $1,280.10 on the Comex close in New York on July 11, 2013. Stop-out point: sell at an intraday stop-out point if Comex spot gold trades at $1,310.00.

Silver
1) The position bought at $19.40 on July 9, 2013 was sold the next day at $19.08, which was its stop-out point. Loss: 32.0¢

2) The position bought on the Comex close in New York at $19.943 on July 11, 2013 was sold on July 17, 2013 at $19.443, which was its stop-out point. Loss: 50.0¢

3) Long one position bought at $18.85 on July 5, 2013. Stop-out point: sell at an intraday stop-out point if Comex spot silver trades at $21.05.

Gold/Silver Ratio – On July 18, 2013 traders unwound at 66.3 the ratio sold at 64.8 on July 5, 2013. The loss was 1.5 ticks, or 2.3%.

I recommend that traders sell the ratio (buy silver and sell an equal dollar amount of gold) at the market (I will use Monday’s Comex close for record keeping). Stop-out point: Unwind this trade on the ratio’s first Comex close in New York more that 2.0 ticks above your entry price.

Comex options (options are high-risk and therefore not for everyone):

Traders bought the Dec 13 Comex gold 1500 call at $49.50 on May 10, 2013.
Traders bought the Dec’13 Comex silver 24 call at $1.654 on May 10, 2013.

Traders bought the Dec 13 Comex gold 1300 call at $35.80 on July 5, 2013.
Traders bought the Dec’13 Comex silver 20 call at $1.125 on July 5, 2013.

Hold these calls without any stop-out point.