Gold/Silver Spread: Another Breakout, Another Stop Out

Gold/Silver Spread

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.

December Gold Silver (7,000 oz.) spread daily

December Gold Silver (7,000 oz.) spread daily

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.

December Gold Silver ratio daily

December Gold Silver ratio daily

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.

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