For context, please first read this post. It contains invaluable self-checks for investors and speculators of all types and levels, as well as an extremely important and simple rule-of-thumb at the end.
General sentiment has turned quite bearish on precious metals as gold and silver bugs have moved a little further along the "Seven Stages Of Grief". Here's how the psychology of precious metals bulls looked a month ago in the middle of April:
We correctly predicted the precious metals dump, then correctly predicted that the bounce would "only be a bounce before new lows", and now that gold is already back at its post-plunge lows and silver is lower it is time to look for a real bounce that lasts awhile.
All we can be reasonably sure of is that gold and silver will eventually go much lower, like it or not. Whether there's a material bounce first is mostly guesswork based on technicals that do suggest we're at or near an ideal point for a big bounce.
Here's a chart of the recent performance of GLD, the gold ETF. Notice that the gap down was exactly "filled" (red line) and now it's back to the recent lows where we can expect strong buying to emerge or another large fast drop in price should that buying fail to materialize:
Silver was down almost $2 (9%) at one point tonight in the futures market (vs. Friday's close) to new lows of $20.25 (gold is at $1343, down over $21 vs. Friday's close), and we've expected serious buying to emerge for silver around the $20 mark which seems to be the case so far.
While we maintain a long-held and highly profitable half-position in ZSL, a silver double-short ETF, half of which was sold for a 62% gain just six weeks after purchase, we're going to go long silver - to some degree effectively hedging our short position (and remaining gold short positions which we've referred to but not diarized on this blog) - via AGQ the ProShares Ultra Silver levered long ETF at Monday's open with no stop level for the time being.
AGQ is down about 90% from its May 2011 highs when silver peaked, and more recently is down 2/3 from its October 2012 highs which includes a nearly 50% fall since February 2013. It may seem that a big bounce is overdue, and certainly there's the possibility of tremendous upside, however another 50% drop in just days is also very possible so attempts at timing a bounce - especially with a levered instrument - should only be made by those who 1. are already well ahead in their gold and silver positions over the past few years, 2. have shown consistent timing skills in actual trade executions over time, and 3. are ideally somewhat hedged and fully understand the risks in precious metals speculating and levered instruments.
Here's a pair of interesting articles, showing our past predictions on these topics apparently coming true?:
Is the Fed Prepping Markets for the End of QE?
Homeland Security’s move against Bitcoin on Mt. Gox could foreshadow closer regulation.