On July 10th, The IMC blog initiated a hypothetical short position in the December gold/silver (x7,000/oz.) spread (short a 100 oz. gold contract, long a 5,000 oz. silver contract, and long two 1,000/oz. ‘mini’ silver contracts) at +$7,275 (premium gold). The position was liquidated yesterday at the close at +$11,273 (premium gold), resulting in a hypothetical loss of -$3,998. The exit criterion was triggered by the two-consecutive day close above +$10,800.
The bullish breakout was confirmed by a breakout to new multi-year highs in the gold/silver ratio as well. This morning the ratio reached 79:1. This upside is likely due to the fact that silver has been punished like an industrial metal during the current market meltdown while gold has somewhat stabilized.
Until a reversal pattern materializes, the gold/silver (x7,000/oz.) spread does not have any price resistance until it reaches the 2008 all-time high of +$13,519 and the gold/silver ratio does not face resistance until it reaches the 2008 weekly spike high of 84:1.
For now, the blog is flat on the gold/silver (x7,000/oz.) spread. We will continue to monitor this spread, but we need to see some sort of setup start to take shape before we can create reentry parameters.