Thursday, June 23, 2011

Growing hedges

8:19 am (Hawaii) Safety and preparation matter. I was not planning on touching this filthy market beyond my little position in DGP, but with FAZ running higher (now 50.77) and spot prices for gold and silver dropping, it's worth exploring more hedging. With QE2 ending in a week and no sign of "intervention" by the Fed and powers that be, PMs are helpless to stay above 1510 (gold) and 35 (silver). If that's the implicit plan of the Fed, to drive PMs down to painful levels (say 1400 and 30) and incite public demand for QE3, then it's better to ride that train and make some fiat. (Then buy more physical at discount prices. After all, gold and silver "sales" rarely happen.)

More FAZ is a possibility as a near and long-term play against the crumbling banks. ZSL is a possibility as a play against declining silver price. Even a tiny ZSL position could net a decent profit. As my metals sit and protect me from potential hyperinflation, hedging toward the downside would be useful.

Trying to play crude oil is wild. The White House could pull out more trump cards and whack away against oil "speculators" and bring price below 85/barrel. That would make SCO a lingering temptress. SCO (53.26) is already up 7.1% today, but off its high of 54.31.

GLL (double short gold) and DZZ (short gold) are possibilities for the doldrums.

The one sector I won't touch is miners. They've been beaten to a pulp and remain near lows even with the recent rally. But with energy prices falling, that should work in favor of miners eventually. The hedgies are or were long gold and short miners, but as Euro citizens move out of fiat currency and into hard assets like gold — which has been their behavior in recent years — miners should get a massive bounce. I'll keep watching for EXK and XG at bargain prices, even AG.

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