Taking a Tactical, Contrarian Position on the Precious Metals (IAU,WPM)

Today’s trade is predicated on the fact that the entire precious metals complex appears weak.  The miners, juniors and silver have all broken down to within a hair of a major selloff, and gold, too, is fast approaching its own breakpoint.

We’ll look at several charts that illustrate the situation in a moment.

Odd Couple Pairing

But first, a comment on the initiative itself, which employs the widely divergent implied volatilities of two separate stocks to create an effective pairs trade that costs virtually nothing to implement and could deliver as much as 5900% if we’re right.

Without getting into all the do-dads of how IV is calculated and why some stocks possess more than others, particularly in the commodity realm, let’s have a look at the charts.

Our bias on the precious metals cluster—as stated above—is contrarian.  That means we’re negative the group for a rather short, tactical bet, though we’re hedging things thoroughly in the event that we’re just plain wrong.

The key item here is the breakdown of GDX and SLV, and to a lesser extent GLD (respectively, the dominant large miners, silver and gold ETFs).

Have a look—

May the Holy One let it unfold as fast or as slowly as He wants…

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew