Gold/Silver Spread: Take a Quick Profit Now So We Can Reenter At a Better Price Later

Gold/Silver Spread

Hypothetically, the IMC blog has been holding a short position in the June-July gold/silver (x7,000/oz.) spread from the equivalent of approximately +$4,123 (premium gold) since January 14th.

This spread has been in a big, fat trading range since the end of last year as it has traded both above and below the +$6k mark every single month since November. It is historically high (ergo, the short position), but the lack of a south-bound breakout has kept us hostage since the start of the year.

June Gold July Silver (7,000 oz.) spread daily

June Gold July Silver (7,000 oz.) spread daily

In mid-May the June-July gold/silver (x7,000/oz.) spread cracked support at the March low and closed below ‘even money’ for the first time since the first week of October. Alas, there was no follow-through to the downside. The spread reversed higher, triggering a Wash & Rinse buy signal (false breakout). Therefore, we think it would be prudent to go ahead and exit the current position with a bit of a profit right here so we can look to reenter when it gets back above the +$6k mark. This will give us a better average entry price.

Trade Strategy:

Buy back the one short 100 oz. June gold contract and simultaneously sell the one 5,000 oz. July silver contract and two 1,000/oz. July ‘mini’ silver futures contracts at +$2,000 (premium gold) or better here in the after-hours market.

 

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