Tuesday, December 23, 2014

Gold Silver Ready To Follow Oil and Gas Collapse

There are many reasons gold, silver, and other commodities should be rallying. Two main ones are, geopolitical turmoil (flight to safety) and worldwide quantitative easing (fear of inflation) which seems to have no end. Yet, oil collapsed over 40%, natural gas 30%, gasoline 35% in the last three months, and now precious metals such as gold, silver, copper, platinum, and related miners, are setup in bearish patterns ready to rollover.

So why is this happening? Inflation, which should have reared its ugly head by now after a massive amount of quantitative easing by the FED, additional quantitative easing by the Bank of Japan and China, and hints that the European Central Bank is about to embark on their own version of quantitative easing, has not shown up in official government data. In fact, central banks around the world are nervous about deflation. Though if you ask the average consumer, they will tell you they have felt the affects of inflation over the last few years in their day to day purchases.

The strong rally in the dollar has had the effect of lowering import prices and falling oil prices have been able to offset price increases in day to day purchases, and the FED has indicated barring a sudden collapse of the economy, interest rates will start heading higher early in 2015. Putting additional upside pressure on the dollar and downside pressure on commodities.

Central banks around the world have been selling their commodities to finance their accumulated debts and war machines, to shore up their militarys in an uncertain geopolitical climate.

Oil and oil related stocks were perfect shorts over the last three months. Many rolled over 30% or more in a very short period of time, and could fall further after a period of consolidation. 

Gold, silver, and their related miners, have spent the past few weeks consolidating into their respective fifty day moving averages, and are now starting to rollover.

One way to play the potential sell off in commodities is to short the miners. Newmont Mining (NEM), Silver Wheaton (SLW), and Anglogold Ashanti (AU), are threatening all time lows and major support areas. 

Another way is to short ETFs like the Spider's Gold (GLD) and Silver Trusts (SLV). Or for the most aggressive traders, buy the 3x short ETFs and ETNs, Direxion Daily Gold Miners Bear 3x (DUST), VelocityShares Inverse 3x Silver ETN (DSLV), or VelocityShares 3x Inverse Gold ETN (DGLD). These are highly volatile instruments and traders be fully away of the risks before trading them.

For more short trading ideas, review the short trading ideas list (click).
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