Dear Member,
I’ve been quiet over the last few sessions for I’ve been watching the gold and silver markets like a hawk. And just as I noted in my last issue, both precious metals continue to bounce higher and gold even broke some very short-term resistance levels at the $1,310 area.
But consider this chart of gold. Gold is now running into major resistance levels, which are scaled in from the $1,350 level up to the $1,375 area. Silver’s chart action (not shown) is similar.
In addition, my cycle work shows an imminent turn back to the downside for gold and silver. A turn that could prove to be a major leg down.
As you know, I have maintained that gold and silver are bottoming, but that the action would consist of fake-out rallies and probably one more leg to the downside heading into August and September.
That is still the case. From a fundamental point of view, not much has changed. Yes, demand for physical gold and silver is robust, but that does not mean the metals cannot decline. Physical demand has been robust the entire time, even when gold and silver collapsed in April and again in June.
In addition, I repeat my warning on Europe. Europe is in terrible shape, and though its financial crisis seems calm of late, beneath the surface there are developments brewing that I believe will soon precipitate another crisis in Europe. Europe’s crisis is not bullish for the metals as it promises to send trillions of euros to cash and into a risk-off mode.
That said, my models are signaling a low-risk bearish trade on gold and silver. Therefore, I recommend the following this morning: Purchase shares in the ETFs ProShares UltraShort Gold (GLL) and ProShares UltraShort Silver (ZSL).
I recommend allocating 5% of your available Gold and Silver Trader funds to each trade. Here are the specific orders, including protective stops for each, and where “XX” equals the number of shares you would purchase based on allocating 5% of your available funds to each position …
For gold:
I want to buy XX shares of ProShares UltraShort Gold, symbol GLL, at the market to open. I also want to sell ALL of my shares of ProShares UltraShort Gold, symbol GLL, at $85.09, STOP. This order is good till cancelled.
For silver:
I want to buy XX shares of ProShares UltraShort Silver, symbol ZSL, at the market to open. I also want to sell ALL of my shares of ProShares UltraShort Silver, symbol ZSL, at $82.19, STOP. This order is good till cancelled.
Go ahead and get these orders in pronto.
Now, to some recent questions from subscribers:
Q: Weak housing numbers were reported the other day, the Fed says it will continue buying mortgage bonds, and gold and silver rallied. What happened?
A: You can attribute the rally to that news, but it wasn’t due to it. Gold and silver have pressed higher in a normal bounce from oversold conditions.
Q: I have not received a single thing from you since June 7. Why?
A: First, please make sure you have our email address white listed by clicking here. Second, always check the website for my latest updates. That way, you can tell if you’ve missed anything. Third, if you ever have a question or concern, phone customer service at 1-800-291-8545.
Q: You’ve said on several occasions that the U.S. stock market should benefit from the world’s economic implosion because all of that money will seek the safety of the U.S., much like it did in 1932 -1937. But in 1932 the U.S. was not bankrupt like it is today. Won’t that impact where the flight of smart money will go?
A: No it will not. Bankrupt or not, it is all a matter of perception. The U.S. — despite all its problems and bankrupt government balance sheet — is and will be seen as the safer bet when money runs for cover.
Q: GLL (and ZSL) should move 2:1 with respect to gold and silver prices. Yet they don’t. Why?
A: It has to do with the vagaries of leveraged ETFs, with interest rates and currency movements, and more. That’s why I do not recommend leveraged ETFs for anything but short-term trading, and even then, the relationship is not perfect.
The only alternative for leveraged trading is the futures market, which is excellent and highly liquid, but not suitable for most investors.
Q: Regarding gold’s largest one day increase in a year the other day, short covering is the general consensus. Your thoughts?
A: Yes, it was largely short-covering. But it was also a normal bounce from deeply oversold conditions and the worst gold and silver crash in decades!
Q: Is the recent spike up in gold and silver sustainable?
A: No, it is not in my opinion and according to my models.
Q: You tell me to buy XYZ and to protect it with a stop. But if the price drops the next day to the sell I will get tagged by my broker as being a day trader. What are your thoughts on that?
A: You should not be considered a day trader, even if a position were to get stopped out the same day. Please discuss with your broker and let him/her know that it is not your intent at all to be a day trader.
On the other hand, if your broker insists on classifying you as a day trader, for whatever reason, then make sure you get day trading commissions from them, which are often lower than other commission.
Q: Why are you not providing frequent updates?
A: There are times when frequent updates are warranted and there are times when they are not warranted. Rest assured that I will always update you when there is an important development to discuss, or important market action.
Keep in mind that 80% to 90% of market action is nothing but background noise, meaningless swings that do not change the underlying trends. Ditto for most fundamental data. Paying too much attention to background noise and meaningless market moves do nothing but trip you up and cost you money and aggravation.
Stay tuned and best wishes,
Larry
