What Next For Gold & Silver?

March 25, 2011 | By | Reply More

Last Tuesday, in the aftermath of the Japanese tsunami disaster when both gold and silver were trading sharply down we wrote that stock holders in the gold and silver sector along with their producers should not succumb to the temptation of joining the herd by selling out but should look on the situation as a buy opportunity.

Excuse us for blowing our own trumpet but we were absolutely right as both metals have since recorded all time highs. We hope you took advantage and have prospered.

What next for gold and silver? Well hang on, they have a lot higher to go so do not be tempted to take profits yet on either metal on what should be your long term holdings. Keep an eye out for the pull backs and add to your holdings. If your cash is limited look to playing the call options on GLD, SLV or a senior miner but only when those pull backs occur.

Our tip last week to buy the Silver Wheaton (SWC) Sep 44 call paid off handsomely. We cashed in our contracts on Wednesday for a 35% profit in 8 days. If we had waited a little longer before selling we would have done even better but have no complaints. This was a classic case of a pull back presenting a short term speculative opportunity by making SWC look a bargain. Incidentally if we had the cash to tie up we would have also bought SWC for the long haul.

In the past we have advised that the best and safest option plays should ideally have a price under$1.50 or at most $2.00 a contract. In this way losses can be limited and the underlying stock does not have so far in hard cash terms, not percentage, to move to the target strike price. Stocks that are in volatile mode are more likely to reach and exceed the target strike price for calls, or fall below in the case of puts, than those that tend to move steadily in a channel. That is of course all dependent upon your take on the prospects for the stock being correct.

At the present time we are wary of both calls and puts in the precious metal sector. No put opportunities present themselves unless as insurance if you think this market may be over extended. The possible exceptions are in the Platinum Group Metals ETFs where if you believe that the world wide economic  situation is deteriorating to such an extent that industrial demand for platinum, rhodium and palladium is going to significantly fall then puts can come into play. However,  beware as platinum is also considered a safe haven metal, inflationary hedge, etc., although not in the same league as gold and silver.

Gold and silver sector calls that have a reasonable time factor are right now outside our parameters for damage limitation, in plain speak they are too expensive bearing in mind that we are looking for option plays that are purely speculative. With that in mind, roll on another major pullback as we are convinced that gold and silver remain in a long term bull run .

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