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rekcarc (99.32)

Sell your precious metals, Short the market (for now)

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October 30, 2009 – Comments (5) | RELATED TICKERS: SPY , XLF , GLD

After another long leave of absense, it's time to update my strategy on CAPS once again. Hopefully everyone listened to my last post where I stated to cover your shorts and go long precious metals. Now I'm here to basically say the opposite (for now). 

I've been mostly in foreign currencies and commodities while slowing picking up a lot of January 2011 puts (mostly on the S&P and XLF). I've been doing that slowly overtime for the last month because shorting a liquidity fuiled market rally, well, can be very painful! Now though it looks as though the multi-year top is in. We should be able to short for at least another 40-50% off the current index prices. I may be slightly early in this call, but I'm fairly confident we are at least very close to that top. 

I continue to hold my physical metals (and indeed never intend to sell them) but I've sold out of all my "paper" metals and commodities (ETFs, mining companies, etc). I do advise caution while shorting this market! It should be bear heaven for the next year or two  but once the deflation stops - and totally dependent on how our government reacts - we've already set ourselves up for the destruction of our currency. Don't be short when that happens, please. 

 

5 Comments – Post Your Own

#1) On October 30, 2009 at 1:34 PM, silverminer (99.84) wrote:

What possible source of strength will keep the dollar from sliding below this pivotal 76 level on the USDX for 1-2 years?

I established a few small short positions recently myself (SKF,SDS,TWM,SRS), and actively raised my cash allocation hen gold traded between $1,060 and $1,070 to buy into anticipated near-term weakness ... BUT ... I view this precious metals outlook for 2010 to remain extremely strong as fundamental sources of dollar support are nowhere to be found.

The appearance of consumer price deflation can be very misleading when your currency is sliding through the floor. Look for currency-driven stagflation to take hold in earnest even as certain classes of consumer prices continue to tank.

I remain about 80% long precious metals equities, especially CEF and SLW.

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#2) On October 30, 2009 at 1:48 PM, rekcarc (99.32) wrote:

I suppose "sell precious metals" came off kind of strong. I was just playing off the title of my last blog post which happened to be "Cover your shorts and go long precious metals" where I called for buying SLW below 6. It's already 12 now, and I don't see 24 coming up as quickly as 12 did.

 As I said I'm still long physical metals, as you really never know when our currency will start to collapse. But as a trade I don't see precious metals showing much strength during a bear market with a strong dollar. I imagine a situation similar to 2008. I doubt gold will fall much below 950, maybe 900, but I'm just not seeing serious growth potential out of it until after we get through this next leg down. 

Silver got cut in half during the deflationary collapse of 2008. I doubt it will be that bad this time around, I just don't think it's the BEST trade while the market collapses. I'm looking for a minor haircut in metals, still outperforming equities, and I will cover my shorts and go back to the metal trade after that happens. For now I think the most profit will be from shorting. 

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#3) On October 30, 2009 at 2:12 PM, silverminer (99.84) wrote:

rekcarc

Fair enough... :)  I believe $980 will hold as ultimate support for gold, with some chance still that $1,000 stands as the new floor. Still, I concede a slight chance that $950 could come into play. $900 is EXTREMELY unlikely, IMO, though certainly within the realm of theoretical possibility since major rumblings for currency interventions are being floated around the globe.

Fools are reminded that there are plenty of things out there to short ... please do not consider shorting precious metals!!!! Stand aside if you feel you must, but this is not a sector to short. Period! Short the indeces if you see equities tumbling, but do not expect precious metals to correlate with equity weakness for long this time around.

The dollar is no longer perceived with the same safe haven status that it was during last year's bout of indiscriminate selling and risk aversion. Gold and silver remain the ultimate instrument of risk aversion, and this is no secret.

Good luck, Fools ... it's shaping up to be a very dynamic close to 2009!

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#4) On October 30, 2009 at 2:29 PM, rekcarc (99.32) wrote:

Yes, definitely do not try and short metals. Not when anyday the government/fed can come out and announced more QE. These days where the market goes depends too much on what the government does. If they try to keep the dollar strong they will kill the economy and make all the banks insolvent, but if they weaken the dollar too much they risk serious financing problems (in my opinion they risk that already anyway). I'm still holding a good portion of my assets in metals and foreign currencies.

Long term I don't think gold has anywhere to go but up simply because the dollar has no where to go but down. There's just a lot of mistery out there right now with our new mark-to-fantasy accounting standards. CRE is getting worse, option arms are starting to explode (I'm looking for big decreases in RE values in CA and FL specifically), and almost more importantly credit is contracting. People cannot afford their current debt levels, especially with rising unemployment. That means no one can afford to buy anything, which means low demand and therefor lower prices. Don't let that fool you though, eventually demand will come from other places (abroad) and demand for our currency will drop - that will mean very quickly rising prices (a great time to hold gold/silver). 

The key here for me is diversification. Try to make sure you can survive in any situation. I'd rather lose a little money if I'm wrong and the economy recovers, because then I'll have a job and my savings will have value! What I'm worried about is the less ideal scenerios which seem ever increasingly more likely. The temporary short equities and lay off metals trade is just that - a trade - not something to do with all your important savings. 

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#5) On October 30, 2009 at 2:45 PM, Harold71 (96.25) wrote:

Good to see you again -- I tend to agree with your strategy

Man am I sorry I didn't buy in some more long-dated puts this morning, had my finger on the trigger.

Have also been selling off my paper PM's...long-dated calls.

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