Yesterday the February-March gold/silver (x7,000/oz.) spread closed below the rising 30-day Moving Average for the first time on four months. This signaled a bearish trend change and triggered a short sale signal.
The IMC blog made a hypothetical trade by selling one 100 oz. February gold contract at approximately $1,197.80 (a value of $119,780) and simultaneously buying one 5,000 oz. March silver contract and two 1,000/oz. March ‘mini’ silver futures contracts at approximately $16.61 (a total value of $116,270). This puts us in a short spread position at approximately +$3,510 (premium gold). Initially, we will liquidate the spread on a two-consecutive day close above +$7,200. This price is about $500 above the November 7th contract high of +$6,698.
Based on the price history of the gold/silver (x7,000/oz.) spread, we are expecting a decline of at least $20k from here. Hopefully, we will see some counter-trend moves along the way to give us some clues as to what we can expect for additional short sale setups and opportunities to build the position size. This could be a golden opportunity for spread traders!