Precious Metals Risk Management

As noted in NFTRH 352:

I thought about releasing my JDST position on Friday because it is very profitable and because it appears that capitulation is in the air. But then I thought about the margin clerk and all those names he may be preparing to call upon on Monday. I thought about how my main intent is not to profit from the precious metals decline but to be intact for buying its bottom. I am not now nor never have been a bearish trader of great skill.

I released a portion of JDST on Monday’s pukage because it had me weighted too net short (ref. the bit above about my lack of bear trader skills) after Monday’s big shoe dropped. I thankfully kept the rest of the position, which is today at a 100% profit.  But that is still not the position’s primary objective.

Due to this disgusting chart’s measurement, I decided to buy 3x Silver short DSLV (now nicely profitable as well) a couple days ago as silver bounced. After discussing the favorable trend developing in the gold and silver CoT structures last weekend #352 noted the following bearish technical situation in silver due to a loss of critical support.

 

The CoT are simply representations of what the various traders are doing on balance. The ‘commercials’ (incl. a large contingent of companies within the gold industry) tend to be net short but that does not force the large speculators to buy. These large entities buy, gold sector promoters tout it and then the whole thing gets cleaned out. Don’t personalize it. That is emotion. Use it. Anyway, technically silver can easily swoop down into the 13’s if a capitulation event comes into play. Understand that these price objectives on Au and Ag are not predictions; they are measurements.

I expect the macro to turn over the next several weeks to few months. But for right now a process needs to finish up in the precious metals. We will need to see what the heretofore perma bulls are saying. Some have already switched bearish, which is positive. But others continue to live in denial and I think this process wants to address that.

So I use the bear funds as hedges with a plan to (very) slowly add quality junior miners/exploration near the targets we have laid out, and hopefully these bear funds turn out to be profit vehicles if I can use enough patience and get the timing right. So we’ll see how that goes. They could be sold about 2 minutes after this post goes up or they could be held into a final swoosh. They are dangerous vehicles, however, and not for long-term holds.

I don’t pretend to be a fancy trader because I can be a Keystone Kop in that area sometimes. One thing I do pretend to be is a hard core risk manager and that has been working out very well. Hopefully soon, the other side of ‘risk manager’ can emerge. That would be ‘risk taker’ when RvR gets compelling (ref. Q4 2008).*

* As noted a million times already, the macro funda (for US players, anyway) are not currently what they were in Q4 2008. Not nearly, as long as the stock market remains aloft and Treasury yield spreads remain depressed, and as long as market participants take the Fed seriously.