The FAZ/AGQ spread has given up some ground this morning but is still making a profit. Markets are reacting in various ways to the end of austerity elections in Europe - in my view this means money printing will start in earnest. To counter this we can expect central banks to do a coordinated raid on Gold and Silver and as silver drops I will be buying - as I do so I will close out the spread trade a little at a time.
The FAZ/AGQ spread worked well today moving 2.28% in my favour. Everyone will have their own theory about the "fat finger" gold sell off this week. The COT shows a large increase in the bullion house ( HSBC and JPM short positions ? ) - my theory is that they tried to jam the market down and got caught by a very deep pocket trader ( China ?? ). I think they have a problem here and we could see them take some big losses on this trade.
The spread moved 0.67% against me today but I really like this trade as we could see some huge volatility if the market breaks and if we see stimulus silver should rally faster than stocks - so I am staying with the trade and looking to add to the position tomorrow.
A good way to look at this trade is to pull up the FAS chart compared to AGQ which shows FAS up around 60% in the last six months and AGQ down 20%. So by buying FAZ one is basically going short FAS and looking for the gap to close. We could see silver out perform as physical deliveries get made. The bullion banks have spent the last month increasing the available silver in COMEX by about 40 Million ounces to "140 Million ounces" but this could just be SLV silver that has been "re-allocated". Their registered silver has increased from under 30 Million ounces to around 34 Million ounces - in my view they are painting the tape to make it look as if there has been a big increase in silver availability and the "buyers" know better.
Yesterday gold dropped $ 15 per ounce in less than one minute. Silver was hit at the same time. Later it was disclosed that a trader may have "fat fingured" 7,500 contracts of gold. I think it more likely that this was another attempt by the bullion banks and FED to knock the gold and silver markets. It would appear that China or "other" entities were there ready and waiting and it did not take long for gold to recoup the losses. This action should be reflected in the COT reports on Friday and it will be interesting to see what comes out. If we see a large increase in the bullion bank short position it would indicate to me that they got stuffed in their attempt to knock the market and that the buyers have put a floor under the market. The alternative in my mind is that they cover the shorts they put yesterday on by close of business today so that the COT reports do not pick up any useful information. Stocks are strong today and I am putting on a short stocks long silver position by buying AGQ and FAZ.
Today they tried to run in the longs on gold and silver but failed. We are now approaching the first notice day for May deliveries and it would seem that there are some very strong long positions that may want to take delivery. As a back drop we have the Dutch, French, Greek, Egyptian and other governments about to fail or change. France , not Spain or Portugal should be the focus - the "austerity" measures being asked of governments are not acceptable to their voters. This to me is the start of a huge Gold and Silver run up. AGQ is fine but it is still just paper. This is the time - if ever there was one - when people should buy physical gold and silver and take delivery. This is what I am doing little by little every day. This is when the physical market finally dictates prices to the manipulated paper market.
I am starting to build a trading position here ( as opposed to my permanent physical long position). There is a chance "they" will try to break the market here but we are two weeks from first notice day and there is a large open position which could indicate a strong rally from here. So I have bought some AGQ and will add on dips. If there is a big sell off I will add to my physical position..