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The Current Gold Price Chaos Might Be Explained, Silver One Of Worst Performers This Month
Although we just like the concept of betting that silver will probably be range-bound, we believe this trade, with unlimited danger in both directions, is too risky. Further, we do prefer to trade gold, because it's less erratic. Read why...
In terms of cash supply, the U.S. is on a cruise while Japan has been running on a treadmill, and Europe just is not hitting the gas pedal like it needs to. In the previous, central bank easing had been more coordinated and synchronized, which had permitted gold to reach its highs. Note that comparable contractions occurred in 1980, 1988, 1991, 2000, and 2008 which all negatively impacted gold.
Another cause why gold was especially hard hit this week. Gold is regarded as a safe haven asset, and also the rise in long-term interest rates provides gold more competitors. Investors can obtain a greater rate of return on their fixed-income assets with out worrying concerning the influence any volatility in the price of gold might have on their portfolios.
One of the worst types of performing asset classes this month has been silver. The whole metals complex has been sold hard since the Fed's announcement last week, and also the move has left many traders perplexed. Gold Coins, Silver Coins, Rare Coins Learn More >> http://www.silverdollar.cc/
Usually silver, like gold, is noticed as an inflation hedge, or perhaps a worry trade, and could be expected to appreciate following the Fed announced that it would increase its asset-buying plan.
We trade gold and silver according to a macroeconomic model, and have discovered that part of the sell-off in metals has been due to a "risk on" trade. Funds are purchasing riskier high-yield debt and selling metals, therefore dumping non-yielding assets while looking for yielding assets. We also suspect that there has been short-term demand on the metals due to end-of-year profit taking and fund liquidation.
Thursday, one trader sold January 29 calls, and January 29 puts, in the iShares Silver Trust, that is the physical silver ETF. This was done to get a net credit of $1.55, and it's a bet that silver will stay bound in a range in between about $27.50 and $30.50 over the next 28 days.
Our models recommend gold and silver are near their fair worth at present levels, and so I'd anticipate only a little move to the upside over the next month.
The silver marketplace is a lot smaller sized - and consequently more volatile - than the gold marketplace so silver is utilized as a beta play on gold. This tends to make silver options fairly more costly than gold options, so there's more premium to be collected by selling options. But obviously, with more possible reward comes more danger, and there's a reason for these greater premiums - silver has been recognized to move over 3 % on an every day basis
Although we just like the concept of betting that silver will probably be range-bound, we believe this trade, with unlimited danger in both directions, is too risky. Further, we do prefer to trade gold, because it's less erratic. How High Will Silver Go? Learn More Kitco Silver >> http://silverdollar.cc