Just a quick note as you might be wondering if it’s a good idea to open short positions in silver given today’s downswing. In our opinion, the answer that only small speculative short positions in silver are currently justified from the risk to reward perspective. Why not full? Due to silver’s volatility and the fact that it could still pop-up one more time before the decline accelerates. This happened a few times in early stages of big declines. There were, however, cases when silver declined right away and didn’t look back (late October 2015).

Why open the positions at all i.e. what changed? Silver (just like mining stocks) declined substantially even without a decline in the main stock indices, which shows weakness relative to the latter. This is important as the stock market was likely the driving force behind silver’s recent outperformance of gold. Since silver just started to decline without a move lower in stocks - and in fact, despite a move higher in it, the outlook for the white metal just deteriorated.

We think that the short (half of the regular one) position in silver is justified with the following stop-loss order and initial target price:

Initial target price: $12.13; stop-loss: $20.83, initial target price for the DSLV ETN: $65.88; stop-loss for the DSLV ETN $16.76

There are no changes in other parts of the portfolio. The speculative short positions in gold and mining stocks remain to be justified from the risk to reward point of view.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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