Scotland voted to remain part of the United Kingdom, Alibaba (BABA) is going
to become the United States largest initial public offering (IPO), U.S. stock
market indexes are up nearly 2% this week, Treasury yields are near lows, and
gold and silver prices are getting bludgeoned in the paper market.
While U.S. financial prognosticators are raving over Alibaba and the IPO,
the price action in precious metals and in the broader U.S. equity indexes
showed signs of weakness about the time it was announced that Alibaba could
start trading in the low to mid eighties.
The gold and silver charts shown below demonstrates the strange price action
in silver futures after the announcement regarding Alibaba's likely price increase
at the open of trading in the stock today.
The chart below shows gold futures prices during the same time frame as the
silver chart above.
The hype surrounding the Alibaba IPO is almost nauseating. However, it may
provide an excellent trade entry into a long position in precious metals. Both
gold and silver have been under major selling pressure for several weeks.
In silver, the selling pressure started around July 15th of this year and
the selling has not stopped. Silver futures prices dropped from roughly $21.50
to $18.50 an ounce in about two months. This represents a near 14% decline
in the price of silver over the past 2 months.
Gold prices have also seen strong selling over the same period from July 15th
to present. Gold prices fell from around $1,340 per ounce to a recent low slightly
below $1,220 per ounce. Gold prices dropped nearly 9%, showing some strong
relative strength against silver futures.
We have been watching the precious metals sector very carefully for several
weeks and price action seems poised for a bounce as major support is underneath
both silver and gold futures here. A break of these levels would trigger some
potentially strong selling pushing metals prices considerably lower. The daily
chart of gold futures is shown below:
The $1,180 - $1,200 price level has shown major support for gold futures prices
which is clearly depicted on the weekly chart of gold futures shown above.
We are contrarian traders and the price action in precious metals is ripe for
a potential bounce. We view the opportunity more as a trading opportunity than
an investment opportunity for now, but that could change in the longer term.
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ETF (GLD) as the underlying asset. The trade will have defined risk and will
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