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With silver at 14.44, it is right at overhead resistance.
What happens next is a coin toss. If I was day trading silver futures I would take some profits now but retain some exposure in case it breaks through resistance. If it does break through and move higher look for more, strong resistance at around 16 dollars.
If it can't break through resistance here, it will likely fall to support levels around 12 and a half.
That is simply another buying opportunity.
In all likely hood silver can't move past 16 without some type of correction in between.
Gold is in similar circumstances with strong resistance all the way from here, 997 through to around 1020. I expect a corrective pullback from here and that will be likely to put more downward pressure on silver, further reducing the odds that it can move past 16.
I don't try and trade the silver market. I am in acquisition mode when it comes to metals. I use pullbacks as buying opportunities. Silver is too volatile to day trade without hedging. I use other markets to day trade, markets that offer more investment vehicles to reduce risk.
Despite what some experts are spouting in unified voice, "Buy and Hold" isn't dead as they would have you believe. "Buy and Hold" is alive and well, as long as you are buying the right thing.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Sunday, February 22, 2009
Sunday, February 15, 2009
Silver is performing. What's next?
So far, so good for silver, so what do we do now?
Besides wait and watch there are some things we should be looking at.
Let's start by examining where we are.
First nothing has changed to derail my overall "big picture" view of hard assets. If anything the new "stimulus" package strengthens my prediction for a weaker dollar moving forward. I still like TBT which is an ultra short position against Treasuries and the Dollar. This is a long term play, whereas I see people fleeing the dollar when the effects of the stimulus take hold and we flood the world with our currency.
So logically, since we are positioned to benefit when that happens, we are going to be selling into that price strength. But here is the rub, once we sell our position in TBT, we are going to be sitting in a cash position. The key word being cash.
You may be asking, "Well didn't you just say that you don't like cash?
I'm glad you asked.
We want that time frame, when our cash exposure is the greatest, to be very short. Having an escape plan is vital. But it's not enough to just have a selling strategy, because in this case, the asset class we are betting against, is the medium of exchange we must use to settle the trade. So where do we go to grow and protect our wealth.
More gold and silver?
Maybe, but maybe not.
The problem is that, if the dollar slides, as I believe it will, gold and silver will be much more expensive too. And they can't go higher forever. They will have to top out at some point and go the other way. So increasing our exposure to the metals, will start to appear very risky. It all depends on how deeply the damage to the dollar goes. Remember many things can happen that we don't expect. So view this as a broad and flexible plan.
The problem is determining value.
What is an apple really worth?
If it costs a dollar today for one apple, then what's it worth when, because of inflation, it costs 10 dollars?
That's the beauty of silver and gold.
Today one ounce of silver will buy you a crate of apples. When inflation hits in ernest, maybe it will buy a truckload of apples, maybe not. Who knows, there might be a shortage of apples that year or maybe a glut. The point is, that we need to identify, at that time, what value is.
For some time, I have been feeling that real estate will be that truck load of apples. If real estate continues to fall as I believe it will, it will be falling in conjunction with a falling dollar and creating a massive, once in a lifetime, buying opportunity for real estate. A perfect storm of low price relative to the dollar, a weaker dollar, and overvalued precious metals. It is at that point that you will probably be getting as sick of me writing about real estate, as you probably are, sick of me writing about silver now.
If real estate turns around before the run on precious metals, so be it. There will be a buying opportunity in some other, under valued, tangible asset at that point.
I believe that commodities like food and clothing as well as energy and materials will retain or grow their value in the future and will appear to be very expensive, but in actuality, will be fairly valued.
Real Estate will appear to be fairly valued but will actually be dirt cheap and no one is going to want to touch it. That's when we will start accumulating, with the profits from our positions against the dollar.
So from here, this is where I am concentrating my efforts; I will be increasing my knowledge about real estate and I will begin to value properties and real estate investment vehicles in terms of silver, instead of dollars. For instance if a property is valued at 300 thousand dollars, I will refer to it as being worth about 22 thousand ounces of silver. Or if you prefer, that same 300 thousand dollar house is worth 320 ounces of gold.
By doing this I will get a better idea of the true value of the investment and where it sits relative to a true measure of wealth.
I don't believe that the dollar can be counted on to be a good yard stick anymore.
One more thing, with houses being foreclosed on in record numbers, the need for rentals is going to increase, be it houses, condos or apartments, I'll be educating myself on these markets as well. Particularly apartments. All those displaced homeowners are going to need a place to live and most likely a cheap place. This may be a good interim investment before housing and commercial comes back.
Remember I am looking at long term strategies here, so I am not purchasing anything yet. Just as I am not selling anything yet. I am still accumulating real tangibles and moving decidedly out of the dollar.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Besides wait and watch there are some things we should be looking at.
Let's start by examining where we are.
First nothing has changed to derail my overall "big picture" view of hard assets. If anything the new "stimulus" package strengthens my prediction for a weaker dollar moving forward. I still like TBT which is an ultra short position against Treasuries and the Dollar. This is a long term play, whereas I see people fleeing the dollar when the effects of the stimulus take hold and we flood the world with our currency.
So logically, since we are positioned to benefit when that happens, we are going to be selling into that price strength. But here is the rub, once we sell our position in TBT, we are going to be sitting in a cash position. The key word being cash.
You may be asking, "Well didn't you just say that you don't like cash?
I'm glad you asked.
We want that time frame, when our cash exposure is the greatest, to be very short. Having an escape plan is vital. But it's not enough to just have a selling strategy, because in this case, the asset class we are betting against, is the medium of exchange we must use to settle the trade. So where do we go to grow and protect our wealth.
More gold and silver?
Maybe, but maybe not.
The problem is that, if the dollar slides, as I believe it will, gold and silver will be much more expensive too. And they can't go higher forever. They will have to top out at some point and go the other way. So increasing our exposure to the metals, will start to appear very risky. It all depends on how deeply the damage to the dollar goes. Remember many things can happen that we don't expect. So view this as a broad and flexible plan.
The problem is determining value.
What is an apple really worth?
If it costs a dollar today for one apple, then what's it worth when, because of inflation, it costs 10 dollars?
That's the beauty of silver and gold.
Today one ounce of silver will buy you a crate of apples. When inflation hits in ernest, maybe it will buy a truckload of apples, maybe not. Who knows, there might be a shortage of apples that year or maybe a glut. The point is, that we need to identify, at that time, what value is.
For some time, I have been feeling that real estate will be that truck load of apples. If real estate continues to fall as I believe it will, it will be falling in conjunction with a falling dollar and creating a massive, once in a lifetime, buying opportunity for real estate. A perfect storm of low price relative to the dollar, a weaker dollar, and overvalued precious metals. It is at that point that you will probably be getting as sick of me writing about real estate, as you probably are, sick of me writing about silver now.
If real estate turns around before the run on precious metals, so be it. There will be a buying opportunity in some other, under valued, tangible asset at that point.
I believe that commodities like food and clothing as well as energy and materials will retain or grow their value in the future and will appear to be very expensive, but in actuality, will be fairly valued.
Real Estate will appear to be fairly valued but will actually be dirt cheap and no one is going to want to touch it. That's when we will start accumulating, with the profits from our positions against the dollar.
So from here, this is where I am concentrating my efforts; I will be increasing my knowledge about real estate and I will begin to value properties and real estate investment vehicles in terms of silver, instead of dollars. For instance if a property is valued at 300 thousand dollars, I will refer to it as being worth about 22 thousand ounces of silver. Or if you prefer, that same 300 thousand dollar house is worth 320 ounces of gold.
By doing this I will get a better idea of the true value of the investment and where it sits relative to a true measure of wealth.
I don't believe that the dollar can be counted on to be a good yard stick anymore.
One more thing, with houses being foreclosed on in record numbers, the need for rentals is going to increase, be it houses, condos or apartments, I'll be educating myself on these markets as well. Particularly apartments. All those displaced homeowners are going to need a place to live and most likely a cheap place. This may be a good interim investment before housing and commercial comes back.
Remember I am looking at long term strategies here, so I am not purchasing anything yet. Just as I am not selling anything yet. I am still accumulating real tangibles and moving decidedly out of the dollar.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Saturday, February 7, 2009
Silver is making a move!
It's starting to look good for silver.
For those of you in SLV or the bullion market, I see some good times ahead. I see clear sailing up to around 14.50 an oz. But expect some resistance there and maybe a temporary pull back. Breaking above 14.50 will signal a major run up so don't miss it.
Here's how and why I'm playing it;
SLW, Sliver Wheaton. Currently $6.72 a share. Their 52 week range is $2.51-$19.54.
I'm not thrilled with their PE ratio at 17.47 but I can tolerate that.
And here's why, SLW is a pure silver play, and while they refer to themselves as a mining company, that's not really what they do. They acquire silver cheaply and sell it at the market price.
SLW has several long term contracts by which they are committed to purchase a mining company's silver output for a fixed cost. Which according to their website, http://www.silverwheaton.com/main/?en&home is $3.90 per ounce with their averaged realized price over $13 an ounce. That's a nice little profit.
What is their risk? That the price of silver will tumble to below 4 bucks an ounce.
We already know that's probably not going to happen.
The interesting thing about silver is that it is not the target of most mining companies. It's a byproduct. Those miners are looking for gold, copper and zinc. Silver just happens to be deposited in the same locations and it is pulled out and sold. Often financing the operation so that their target ores are obtained for free. That's why mining companies are willing to lock themselves into contracts for such a ridiculously low price. They are guaranteeing their continued operation no matter what prices do. They simply don't care about the silver.
But Silver Wheaton does.
So where does all this lead us?
I'm building up a position in SLW, but (now pay attention here), because SLW is announcing 4th quarter results on Feb 19th, I'm hedging.
So what does that mean?
I am buying the shares outright but I'm also buying puts, as insurance for the earnings release. Which could be bad due to the recent price collapse.
I am not concerned about the long term prospects of the company because their business model is so good and I know that silver is here to stay, at least for the foreseeable future. But you never know how the traders will react to news of any type.
Of course the news could be good, in which case I will probably lose a couple bucks on the puts, but, again, it's insurance, not a trade.
I'm buying short expiration, in-the-money puts.
Now if I didn't know what that meant, I wouldn't try it. I would simply wait until they report and then either, buy at a discount if they fall in price or take my lumps and pay up for the shares.
The mining sector has sure taken a beating lately, some of them have been hit 70, 80 even 90%,
but as a trader I view this as a golden opportunity and as you know, I like gold too!
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
For those of you in SLV or the bullion market, I see some good times ahead. I see clear sailing up to around 14.50 an oz. But expect some resistance there and maybe a temporary pull back. Breaking above 14.50 will signal a major run up so don't miss it.
Here's how and why I'm playing it;
SLW, Sliver Wheaton. Currently $6.72 a share. Their 52 week range is $2.51-$19.54.
I'm not thrilled with their PE ratio at 17.47 but I can tolerate that.
And here's why, SLW is a pure silver play, and while they refer to themselves as a mining company, that's not really what they do. They acquire silver cheaply and sell it at the market price.
SLW has several long term contracts by which they are committed to purchase a mining company's silver output for a fixed cost. Which according to their website, http://www.silverwheaton.com/main/?en&home is $3.90 per ounce with their averaged realized price over $13 an ounce. That's a nice little profit.
What is their risk? That the price of silver will tumble to below 4 bucks an ounce.
We already know that's probably not going to happen.
The interesting thing about silver is that it is not the target of most mining companies. It's a byproduct. Those miners are looking for gold, copper and zinc. Silver just happens to be deposited in the same locations and it is pulled out and sold. Often financing the operation so that their target ores are obtained for free. That's why mining companies are willing to lock themselves into contracts for such a ridiculously low price. They are guaranteeing their continued operation no matter what prices do. They simply don't care about the silver.
But Silver Wheaton does.
So where does all this lead us?
I'm building up a position in SLW, but (now pay attention here), because SLW is announcing 4th quarter results on Feb 19th, I'm hedging.
So what does that mean?
I am buying the shares outright but I'm also buying puts, as insurance for the earnings release. Which could be bad due to the recent price collapse.
I am not concerned about the long term prospects of the company because their business model is so good and I know that silver is here to stay, at least for the foreseeable future. But you never know how the traders will react to news of any type.
Of course the news could be good, in which case I will probably lose a couple bucks on the puts, but, again, it's insurance, not a trade.
I'm buying short expiration, in-the-money puts.
Now if I didn't know what that meant, I wouldn't try it. I would simply wait until they report and then either, buy at a discount if they fall in price or take my lumps and pay up for the shares.
The mining sector has sure taken a beating lately, some of them have been hit 70, 80 even 90%,
but as a trader I view this as a golden opportunity and as you know, I like gold too!
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
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