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MYERS ON FUTURES
Prepared by Steven R. Myers
Long Silver–Short Gold
Still Moving Briskly
This spread is still moving very nicely. It seems this spread can make money on both sides.
The fundamentals and technicals are both working for this spread! The fundamentals have turned bullish for silver and bearish for gold. The technical action is bearing witness to these facts.
This spread seems to be trending almost every day. This is how easy a trade can be when you are in one at the right time. It does not explode a lot in any one day, but it seems it has to move some almost every day. A few hundred each day can really add up over time. The demand for the actual use of silver seems to have outstripped the supply. The real uses for gold are small. Gold is almost exclusively used for a storage place for wealth. The holders have decided that even a small interest rate return is better than a zero return for gold. Silver can provide the same inflation hedge as gold as well as having some real demand. It will take continued demand to move the price of silver higher because no inflation is on the horizon. Real estate prices worldwide are in a downward spiral. Crude oil prices are flat. The currency problems around the world has put the growth of the third world countries in a slower mode for a while.
It is good to have an idea of the fundamentals behind a possible move. The move has to actually be happening to confirm those possible fundamentals. The speed of the move will tell you the real validity of those fundamentals. Some expected fundamentals never materialize.
This long silver/short gold spread appears to be one of those lengthy trends that one should be adding to instead of getting out of.
El Nino Bean Move?
There has been a delay in the actual weather problems that can be associated with such a strong El Nino. This does not mean that there will not be weather problems down the road. It can sometimes be a place to reconsider a long-term long position when a market makes a 50% pullback in an upmove. We are near there in the beans. This may be a new bear market if March beans go below $6.85. A lot depends on the weather in Brazil for the next 30 and 60 days. It appears that beans may take a rest until the new year. There is still a good chance for a nice move in corn and beans in 1998. A market has to continually prove it's strength to be worth staying with. Add to winners and not losers. Make this market reprove itself before getting overly heavy on the long side.
New Dollar Uptrend!
The Dollar Index is once again gaining momentum in the upside. This is one of those financial markets that can make a huge move in a long bull market. This is one of those markets that you should always keep your eye on to go with any major move. Many of the food commodities will explode when a weather problem comes along, but the move may be over in just a couple months. A 6-month uptrend is a long move for many commodities. The financials will sometimes have an overall move that lasts more like 6 years. Even an advance of one thousand dollars per contract per month is a lot after 6 years.
New Sugar Bull Market
The sugar bull market is real because it is ignoring bearish news. The news today of a likely permanent settlement of the dock strike in Brazil only put sugar down one tick. This means it will jump nicely when some bullish news comes along. Sugar has been a long, but slow uptrend. This means that the low volatility has kept the option prices low so far. Some short-term calls can be had for under $100. A longer-term October 13-cent sugar call is around $300. That is a lot of time. Time helps slow uptrends develop into faster uptrends. Most uptrends have to start slow and gain momentum as time goes by. Consider some of these longer-term sugar calls. The weather has turned the fundamentals around big time in a couple areas of the world. Sugar is grown in many areas. Weather problems in a couple more areas would send this one sharply higher. It is a different matter to pay $300 for a nine-month option than it is for a one-month option. More things can change in 9 months than in 1 month. This is why most out of the money options with only a life of one month will expire worthless. Consider the long side of sugar. This may develop into a new bull market. So far it is only trying to wake up.
December 5, 199 7Steven R. Myers
Myers On Futures Co.
P.O. Box 777, Summerfield, Florida
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