Gold/Silver Spread: Waiting for a New Setup to Add

Quick Turnaround

You may recall that the blog entered both the initial position and the ‘add-on’ position in the June-July gold (100 oz.)/silver (x8,000/oz.) spread on St. Patrick’s Day.  The entry price for both of the positions was at approximately -$1,890 (premium silver).

The ‘add-on’ position had a short leash as we risked to a two-consecutive day close above ‘even money’.

As it turns out, the ‘add-on’ position also had a very short lifespan!  The position was liquidated at +$462 (premium gold) on March 24th.  This resulted in a loss of -$2,352 on the trade.

Strategy

Given the whiplash of the last couple of weeks, we are going to observe the spread’s price action before issuing reentry criteria for an ‘add-on’ position.

Gold (100 oz.) Silver (8,000 oz.) spread (75-bar MA) weekly

Gold (100 oz.) Silver (8,000 oz.) spread weekly (with a 75-bar MA)

Ideally, we will find some sort of setup after the March low has been breached…but before the spread makes an end-of-week close below the rising weekly 75-bar Moving Average for the first time since January 2013.  We hope to be getting into a second ‘add-on’ position (the third short sale) around that time.

Given the fact that our minimum expectation for the gold (100 oz.)/silver (x8,000/oz.) spread is a decline to something in the neighborhood of -$80,000 (premium silver), we should have plenty of opportunity between here and there to increase the position size.

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