SILVER AND GOLD UPDATE

This post is from Chaz...a commodities trader that writes a monthly newsletter on the precious metals market. He has given me permission to post it on my blog. As a disclaimer...I (and Option Magic) are not responsible for the content or recommendations in this newsletter. Thanks Chaz.

Good evening traders. This update is intended primarily for the new traders in our group. I've received many questions about what is going on in this market and since I have quite a few new members , I'm going to try to bring you up to speed. So lets get started. There are two primary rules to investing. Rule #1. DO NOT lose principal. Rule #2. Reread rule # 1. Last month I gave you barrier numbers for gold. They are 1278, 1369,1444, 1521, 1600, 1650, 1681, 1764, 1849, 1936, and 2025. Tonight we are going to talk about 1369 and 1444. As I explained before, these barriers act as resistance until they are clearly broken and then act as support. I also said that it usually takes ABOUT 3 assaults on a barrier to break it. When the market is trading in between barriers, ANYTHING GOES. Often , anything and everything can, will, and usually does. So what just happened ? Pull up a current gold chart and lets take a look. A second assault was occurring on the 1444 ( resistance ) area and the short sellers stepped in and sold tons of unbacked paper contracts into the market to try to force the price down, which they did. But look what happened. They were stopped at about the 1369 ( support ) area. When a market makes a move that carries it from one barrier to another, that is A MAJOR WARNING that extreme volatility is very near. I believe we will see swings as high as $100 in gold and possibly as high as $5 in silver very soon. What just occurred was what I refer to as a RAID by the short sellers. This has been going on for years. This is why we DON'T TRADE CONTRACTS. We trade options ONLY. If you were long on a gold contract, you would have just lost a LOT of principal and possibly been forced to liquidate if you didn't have enough capital to maintain your margin. If you were sitting on a gold call option, the value of your option would have dropped but YOU WOULD STILL HAVE YOUR OPTION and you would be in position to ride the next wave up. This next wave will likely break the 1444 area and quickly run up to the 1521 area and possibly BLOW THROUGH it on to the 1600 area. Remember, barriers are not exact numbers, they are approximate numbers. Also remember that every time we get near a barrier that it is highly probable that a correction is about to occur. Such as we just witnessed. If you do not trade contracts or options and hold physical metals only, then you don't even need to concern yourself with what this market is doing unless you buy and sell daily as I do. I was asked if I was worried about this move. No, I am not. I did lose potential profits to the tune of tens of thousands of dollars but I still have ALL of my position and am certain that I will profit very well as this market resumes upward in the next few days. To an experienced trader, a correction like this is a GIFT. It is an open invitation to increase your position to make even larger profits. Now, on to silver. Last month, I said that it was almost impossible to give you barriers on silver. Last week I had a conversation with my good friend J.B. Slear at Fort Wealth Trading and we were discussing silver barriers. If you recall, I said $35 was very likely but that I felt like $40 was a little too optimistic. Guess what? We identified two barriers in that range. The first is at $37.25 and the second is at $39.70. There are never any guaranties but I am very comfortable that we will see $37.50 soon. We may even go to $39.70 but I think it is highly likely that a violent correction will occur once we top out. The higher these markets go, the more volatile they are going to be. Within another year or two, you will probably see swings that will put some contract traders into cardiac arrest. Try not to be one of them. Happy trades....Chaz