In the first half of last week, the December gold/silver (x7,000/oz.) spread broke out to new contract highs and knocked us out of a (hypothetical) short position. On Friday the spread closed back under the old highs, indicated that the breakout was a failure. We call this pattern a Wash & Rinse sell signal. It’s pretty powerful stuff. As a matter of fact, this triggered our reentry parameters on the short side.
Yesterday the blog reentered a hypothetical short position in the December gold/silver (x7,000/oz.) spread at approximately +$7,275 (premium gold). Initially, we are going to risk this position to a two-consecutive day close above +$10,800.
At the very least, this failed breakout should put the spread on a trajectory back down to the May 18th multi-month correction low at -$1,679 (premium silver). If the gold/silver (x7,000/oz.) spread is finally ready to leave the multi-month trading range, though, it could be just the start of a much larger decline. Once the May low is decisively broken, we will get a lay of the land and see if any opportunities arise to add to the short position. Given how long we’ve been wrestling with the gold/silver (x7,000/oz.) spread, we hope to really capitalize on it once a real bear market finally develops.