Gold/Silver Spread: Add On Bearish Confirmation

A Hat In the Ring

On February 18th the IMC blog entered a hypothetical short position in the June-July gold (100 oz.)/silver (x8,000/oz.) spread when it sold one 100 oz. June gold contract at approximately $1,225.80 (a value of $122,580) and simultaneously bought one 5,000 oz. July silver contract and three 1,000/oz. July ‘mini’ silver futures contracts at approximately $15.51 (a total value of $124,080). This initiates a short spread position at approximately -$1,500 (premium silver).

The initial liquidation trigger is a four-consecutive day close above +$500 (premium gold), which puts it above the 2015 multi-year peak of +$132, basis the nearest-futures contracts.

Looking To Add

The spread posted a new high on Friday. This slightly eclipsed the August high. A nice pullback this week would indicate that a Wash & Rinse pattern has been triggered. This would certainly be a good confirmation for the short position.

June-July Gold (100 oz.) Silver (8,000 oz.) spread daily

June-July Gold (100 oz.) Silver (8,000 oz.) spread daily

We are also running a contingency to add another spread on a close below the rising 50-day Moving Average, which is currently around -$3,849. A clean break below the 50-day MA for the first time since early November would signal a bearish trend change.

More Technical Confirmation

Once the June-July gold (100 oz.)/silver (x8,000/oz.) spread has broken the 50-day MA, we will be cheering for a break of a prior month’s low. This has not happened since October. Such an event would alter the price structure, further confirming our expectations for a bearish trend change.

Gold (100 oz.) Silver (8,000 oz.) spread weekly

Gold (100 oz.) Silver (8,000 oz.) spread weekly

Finally, an end-of-week close below the rising weekly 75-bar Moving Average (currently around -$9,170) in the gold (100 oz.)/silver (x8,000/oz.) spread and an end-of-week close below the rising weekly 75-bar Moving Average (currently around 74.3:1) in the gold/silver ratio for the first time in over three years months should seal the deal. At that point, we hope to have at least two profitable short entry signals still intact and working on plans to add even more.

Expect more posts on this spread as things progress.

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