By Jeffrey Saut Chief Investment Strategist at Raymond James

December 19 (King World News) - A Possible Gold & Silver Trade

Holiday shoppers seem to become more ravenous and maniacal each year, and one only needs to get anywhere near a mall to see that we are right in the thick of the craziness at the moment.  Department and jewelry stores are crammed with consumers hoping to bring some cheer to loved ones by buying the perfect gift, many of which will be of the silver and gold variety....

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While these precious metal accoutrements indeed bring much pleasure to those fortunate enough to receive them, investors may have a different opinion on the “shiny stuff” when it comes to the returns received the past couple of years.  It has certainly been a rough “buy and hold” for the gold and silver bugs.  After witnessing a meteoric, multi-year rise that culminated in the two assets hitting all-time highs in 2011, those who have held onto their investments have endured a painful retracement.  But could there be hope on the horizon in 2014? 

When you look exclusively at the technicals, both silver and gold appear to be at probable support areas on the charts and could provide a favorable risk-to-reward for any new or additional purchases.  By using the SPDR Gold Trust (GLD) and the iShares Silver Trust ETF (SLV) as proxies for the underlying metals, one can see the similar chart patterns that could indicate a possible double bottom forming in each instrument (the chart for GLD above but SLV looks very similar).  Even a return to the swing highs back in August would mean significant upside when compared to the risk if these patterns come to fruition.

… Asset classes have a tendency to revert to the mean.  The stock market has been roaring this year, with the S&P 500 (SPX/1,781.00) well on its way to a greater than 25% annual gain in 2013.  Commodities, on the other hand, including silver and gold, have not fared nearly as well.  Equities have not yet given a sell signal, so this is by no means a call to switch out of stocks and into precious metals, but if you are having trouble finding promising risk-to-reward setups in this runaway equities bull market, it may be a favorable time to take a second look at silver and gold, especially if you have written them off due to poor performance.  To paraphrase the song lyrics above, “How do you measure their worth?  By the pleasure they give here on Earth.”  Hopefully, this turns out to be a pleasurable trade.

King World News note:  Saut also noted that traders should keep a tight stop on this trade.

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rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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