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Richard A. Cox
Richard A. Cox
Articles (66) 

SLV Foreshadows Declines in GLD: Sell The Break

Data reports could sway policy opinions before end of this year

October 10, 2016 | About:

So far this year, market valuations in precious assets have held up better than most other asset classes.

But market trends can only continue for so long, and now we are starting to see a climate where those trends might be changing. Those trading in metals and commodities will often use instruments like the SPDR Gold Trust ETF (GLD) or the United States Oil Fund (USO) to gauge their assessments. There is good reason for this, as these ETFs tend to get the most attention, and market headlines influence the sentiment levels seen in the broader market.

But in the current climate, it makes sense for investors to look elsewhere as the iShares Silver Trust (SLV) could be leading the pack in terms of its ability to predict what is really happening in the market as a whole. Precursors like these can be valuable in assessing trends for a broad number of assets, so it is a good idea to assess trends in these areas in cases where you do not even have an active position.

Macroeconomic issues are still governing the landscape (especially at the Federal Reserve), and inflation could turn out to be the most volatile component in the equation.

Consumer price trends

If we look at things from the 2015 perspective, it can be easy to leave consumer inflation levels out of the conversation.

Screenshot 2016-10-04 at 11.20.50 PM.png

But this year, we have seen somewhat strong percentage increases that have remained relatively consistent year to date. This has inspired rounds of dissent within the Fed that have actually called for early rate increases at policy meetings, and the situation is starting to look more precarious than most investors realize. So far, this has helped boost returns in commercial properties and crowdfunding for real estate markets.

Recent declines in silver prices are a direct expression of this and these moves could define the trends seen into the end of this year. What is not surprising is that stocks like iShares Silver Trust have taken a tumble over the last few weeks and what we are seeing now is a short-term capitulation that will eventually create better opportunities for buyers as we begin positioning in 2017.

Screenshot 2016-10-05 at 12.03.11 AM.png

Another factor that is often a good indicator of short-term sentiment is the nonfarm payrolls report, and this is likely to gain in importance (and volatility) over the next few months. This is also an economic indicator that has become increasingly erratic to the point where it is almost difficult to understand the broader trajectory.

Chart View: iShares Silver Trust

Screenshot 2016-10-05 at 9.05.36 PM.png

In the chart above, we can see what looks to be a strong rally in iShares Silver Trust. But the latest moves suggest that markets have reached a top as investors fall victim to the increasing likelihood that an emerging minority is occurring at the Fed.

The 15.20 region is likely to be an area of short-term buying activity using breakout trading strategies, but this might still be viewed as acceptable for longer-term outlooks. Those positioning on smaller time frames, however, can use this latest break as a selling opportunity.

Disclosure: Author has no position in any asset mentioned.

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About the author:

Richard A. Cox
Richard A. Cox is a syndicated financial writer.

Rating: 5.0/5 (1 vote)

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Comments

CommodityHQ
CommodityHQ - 2 years ago    Report SPAM

"Those trading in metals and commodities will often use instruments like the SPDR Gold Trust ETF (GLD)..."

I've been trying to do my due diligence into the SPDR Gold Trust (GLD). Anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn't help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. There are a number of other red flags as well from what I'm reading:

"Did anyone try calling the GLD hotline at (866) 320 4053 in search of numerical details on GLD's insurance? The prospectus vaguely states "The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody." When I asked about how much of the gold was insured, the representative proceeded to act as if he didn't know and said they were just the "marketing agent" for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors.

I remember there was a well documented visit by CNBC's Bob Pisani to GLD's gold vault. This visit was organized by GLD's management to prove the existence of GLD's gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities.

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