Commodities & Metals

An Odd Chart Read on Gold, Silver, and Rare Earths (GLD, SLV, AGQ, MCP, REMX, REE, AVL)

Using charts alone is something that may not make sense to most people. Still, thousands of investors make a living at just that.  Fundamentals be damned!  We do not subscribe to the notion that charts and charts alone will tell you the full picture.  We also admit that not looking at a chart when making investment decisions is more silly than just relying on charts alone.

We have been given a short audio-video presentation that predicts the near-future price trends on gold, silver, and rare earths from our Adam Hewison of INO, our technical analysis affiliate.  We are tracking gold by the SPDR Gold Shares (NYSE: GLD) and we track silver for equity traders via the iShares Silver Trust (NYSE: SLV).  The rare earth example used was in Molycorp, Inc. (NYSE: MCP) and we would note that there are other issues to watch.

What is interesting is that Hewison gave a much more bullish case for Silver than he did for gold, something which we think is probably more of a tail wagging the dog scenario.  It almost even sounded like a pairs trade opportunity of “short gold, long silver” even though that was not said.  Gold has been in nose-bleed territory, but silver has done much better and many feel that there became more of a silver bubble than a gold bubble.  If Hewison is right about Silver and we are not, then ProShares Ultra Silver (NYSE: AGQ) is the best ETF to use for trading intraday as it is double-long silver.

When it comes to Molycorp, there is a lot more to this than meets the eye.  The share supply is actually still very low and that float is about to double.  China is in the cat-bird seat right now, and that nation could run prices of rare earth elements and rare earth oxides up or down through the roof.  Our take is that looking at Molycorp really requires looking in more detail at Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) as the ETF, and then at Rare Element Resources Ltd. (NYSE/AMEX: REE) and even Avalon Rare Metals, Inc. (NYSE/AMEX: AVL) as secondary or tertiary wins.  This share count was not addressed at all, and that could be one huge risk that might need to be considered outside of just the charts.

JON C. OGG