Today there was a massive gold and silver selloff which was the newest asset class to partake in the volatility of the week.  Gold fell over $100 an ounce today which is just unheard of.  Silver dropped $6.50 an ounce to $30 dropping over 26% for the week.  The SLV was down 25% since Wednesday close.  If anyone out there was long the ZSL ETF in the last two trading session, my hat is off to you!  I definitely was not one of those who had a trade worth 70% of upside in 48 hours.  Not too shabby.  The biggest drop of the silver ETFs however was the drop in the Proshare Ulta Silver Trust the ACQ which dropped from $210 to $118 in the same two day period.  Absolutely crazy!

Gold falling over $100 caused me to do a double take today when I saw it.  I would think that gold and the GLD would go up on worries of recession and European default, not down.  The GLD went from $176 on Wednesday to closing under $160 today, roughly a 10% decline in two days.  This is unheard of for the precious metal.  The Gold Miners ETF GDX, dropped over 15% in the same two day period; while the UGL dropped even more!  Just about anything that was long gold or silver in this period lost huge chunks of value.  This was the biggest two day gold and silver selloff I have ever seen as an investor.  I am glad I currently had no positions in the metals.

Analyzing the gold and silver selloff

Now why did gold and silver selloff so much today when normally it is a hedge to a debt crisis and recession?  I bet some of it had to do with margin requirements but definitely not all of it.  My guess is that investors were trying to cover their losses with the one asset class that was making money over the last couple months.  Now as a forward thinking bull in the stock market, this could be a good sign for equities.  If money is moving out of precious metals with treasuries yielding next to nothing, equities have no wear to go but up if we can have the dust settle in Europe!  Hopefully something positive comes out of Germany over the weekend saying Greece will not default which will lead to a 300-400 point upswing on Monday.  But once again, I might be just too optimistic. 

What I can say about the gold and silver selloff is that silver is starting to get cheap.  If it goes down another 10% next week, I would strongly look at playing it on the long side.  Now as I have stated before, I am much more comfortable playing equities than I am these precious metals, but a trade is a trade.  Something we have proven over and over is that markets overreact in both directions and we could be in one of those to the downside right now.

Another possible way to play the overreaction in the gold and silver selloff would be to buy some of the miners that have been hammered.  Two such names are the big names in each metal; Barrick Gold and Silver Wheaton.  Barrick Gold is within 10% of its 52 week low while Silver Wheaton is down to $32 a share when it traded at $42 just two days ago.  These moves are very uncommon and I feel the stock price will come back with or without the price of the metals returning to their highs.  These plays have volatility and risk, but I feel are two very solid ways to play the massive gold and silver selloff that occurred today.

Have a great weekend,

Vinny

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