George Slezak Still Bearish on Gold, Again Bets Money On It
NOTE: Originally published for Metal Augmentor subscribers on January 19, 2010 at 5:18PM EST.
After more than a year of dithering and trying to find the best content management and back-end solution for Metal Augmentor, we are happy and relieved to inform you that final implementation of the necessary programming to bring our site to full functionality is in progress. As a result, we will be announcing our official launching within weeks if not days.
In celebration of the conclusion of this dragged-out affair, we will be opening up the Metal Augmentor service to new Founding Members for a short period of time at the lifetime rate of $107 per year (quarterly and monthly subscriptions will also be available). We already have quite a few people on the waiting list, which you can sign up for by going to the website.
Among the new features we have just introduced are full charts on the basis in gold and silver which we hope to shortly have available for subscribers in a dynamic format that updates in near-real time. Over the next few weeks we will be posting public commentaries on websites such as Kitco, Goldseek, Seeking Alpha and Gold-Eagle to explain how the basis can be integrated into trading and investment strategies as well as to serve as an early warning for monetary calamity.
Thus, we urge readers of SILVERAXIS to sign up for the Founding Membership waiting list now before the crowds start knocking down our doors. But seriously, we are placing a strict limit at this time of 500 Founding Members (we are well on the way to that number already) until we can get a better sense of how much effort it will entail to provide individual attention to a group that size.
And for those of you who think our investment strategies suck, we invite you to sign up as well, since if you turn out to be correct, then your subscription renewal will be free under our one-of-a-kind gimmick whereby our portfolio selections and allocation must beat a 50/50 investment in gold and silver bullion. You might think this is easy but in fact very few people are able to do it. Honestly, if we can’t, you shouldn’t be paying us anything. We will also be encouraging the various newsletter writers, experts and pundits to join us in this dare, so look for plenty of teeth-gnashing and hair-pulling from the competition as we challenge them to rise to the occasion.
Without further ado, here is today’s commentary:
We don’t listen to most gold bears but there are some with great market timing and extensive trading experience like George Slezak who you ignore at your own grave peril. Although Mr. Slezak has been wrong on gold more often that not in the recent past, his overall record is very impressive. Indeed, even while his gold calls have been off the mark, he has been among the top recognized market timers during 2009. We like his approach because he views price itself as the key trading indicator along with supply-demand fundamentals. No, not physical supply and demand but rather the supply and demand of traders as evidenced by the Commitments of Traders data.
We are not going to provide much running commentary with respect to Mr. Slezak’s latest call on gold other than to point out that he does not make his speculative trades public very often. Over the past couple of years, he has only made a few and some of these were also put options in gold like this one (none of which have paid off by the way). So there are certainly reasons to doubt his latest bearish thoughts on gold. On the other hand, George’s message is simply and straightforward. Moreover, a trader with his experience will eventually get it right, and usually when it happens, the payoff is really big.
No question the $1000 level in gold is now a really big line in the sand with various pundits claiming that the Beijing (and Delhi) Put along with the general state of global economic affairs guarantee no future sojourns below that price. To answer this, we will just say that instinctively we like a contrary option play that targets a “dramatic” price level like this. If you are going to be controversial and disruptive to the consensus groupthink, you need to go for broke.
Without further ado, here is Mr. Slezak:
GOLD
The following chart is a 30 year chart of gold with the net commercial positions from the COT report plotted over the chart of gold in red. The chart shows the net commercial position is the largest net commercial short in gold in history.
The above chart of the net commercial position suggests we should be on watch for a change in trend in gold. The net commercial positions on the currencies (not shown) suggest we should be on watch for a turn to strength in the Dollar. These net commercial positions suggest we should look closely at the short term chart of gold to track potential weakness.
The following chart of front month Gold futures shows that Gold recently bounced back above HALF BACK to it’s all time high. Half back to two thirds back might be important resistance “IF” gold is at a major top area.
“IF” gold breaks the recent support at 1080 and the long term trend line at 1080, gold could QUICKLY fall towards next support near 980!
Someday, the bottom will fall out of the gold market. “Many” things suggest the decline may be closer at hand than most believe.
Considering the potential volatility of the gold market I am making the following option trade recommendation:
FUTURES OPTION TRADE RECOMMENDATION: 1/15/2010, BUY ONE JUNE GOLD 1000 PUT FOR 15.00 ($1,500) or better. Risk is the premium paid plus commission if exited before expiration. Gold options trade on the electronic market until 5 PM eastern.
Monday is a US Market Holiday.
We would note that in the above chart it is obvious that reaching the $1000 price level before option expiration would mean that the uptrend from the November 2008 lows would need to be broken decisively. Such a break could very well create (or be the result of) gold market panic. This means that the trade arguably makes sense even if the market interpretation turns out to be incorrect. We are not ready at this moment to side with Mr. Slezak on this trade, but we certainly are willing to be convinced. Indeed, our short term trading flag is still flying red, which means our own market positioning anticipates a period of market volatility and weakness (like Mr. Slezak, we’ve been wrong early and often in this regard).
In conclusion, we know this type of commentary grinds against the sensibilities of most people in the gold bull camp, but our job is not to appease but rather to make money for ourselves and our subscribers. Importantly, since we are not pure ideologists, we don’t care if the market is going up or down, and that includes the gold market. What we care about is being positioned for profits.
Disclaimer: Mr. Slezak is a licensed professional, we are not. He is making a “futures option trade recommendation”, we are only providing our opinion on speculative trades. Futures and options can expose a trader to substantial losses including more than the original amount invested. If you have money burning a hole in your pocket and you are looking to trade futures and options, you should consider the services of a licensed broker like Mr. Slezak. Even though we can’t recommend his trade ideas, we can recommend him.
So does “Someday, the bottom will fall out of the gold market.” mean he just assumes the dollar won’t?
I have no clue, you’d have to ask him yourself. This is purely a timing and trading call in my view and I don’t generally pay much attention to people’s macro opinions. George is a short term trader foremost who understands markets in general even if he may not have the best grasp on the various fundamentals that drive the gold price over the longer term.
I recently looked at some COT charts and have come away with the general ideas.
1. They can be very valuable in some situation but do not always work in the medium to long term (i.e., several month, years). You ignore at your peril, however.
2. Some markets follow the Big Trader’s positions very closely. This means when the big trader’s sell the market moves down and vice versa. The Agriculture and energy commodities are like this very often. It makes sense since these are so fundamentally driven and trader’s are the nimbliest. Also, the Commercials are ususally ‘real’ commercials who actually use or produce the commodities. Often time these are hedges and the success of a future’s contract in one direction may not be critical.
3. Silver and gold are different. Here the Commercials are ALWAYS SHORT!! This is very odd. In fact, the short position is dominated by a few banks!! It is NOT dominated by producers trying to hedge. Clearly, the Big Trader’s dominate the short term market (it moves in response their buys and sells). However, the long term market is dominated by the commercial interests. Based on the chart above, it appears that such ’smart’ money is really in the ‘hole’ since Calendar year 2000. They just seem to be digging a bigger hole with more and more short positions?
what would happen if the large banks who do all the commercial shorting stopped entering such positions? The Trader Long and small traders would have no one to take the other side (the short side).
The trader’s would have to take the short side. This would happenm, but at much higher prices.
Great comments, eddy! I’m currently working on a piece that examines COT a bit closer and provides some tools for traders and market observers to use in formulating their opinions. Also, going forward SILVERAXIS will return to its original premise, which is “Dedicated to Investment Opportunities in Silver”. That means less generic posts — for example those about gold or whatever else that only peripherally touch on silver. So effectively non-silver commentaries will be reserved for Metal Augmentor subscribers but the good news is there will probably be more free material here that is specific or at least directly related to silver.