Global Macro Commentary

Flipping to Long January 27, 2011

Here’s basically what happened during the past 4 weeks:

PMs developed a strong downtrend for about 3 weeks as optimism grew and the need for QE diminished. Yesterday, however, Bernanke made it clear that he doesn’t buy such optimism, at least until there’s real job growth, and that QE will continue as planned; this certainly removed any doubt about QE, and markets traded accordingly – UP.

Of course, I don’t expect silver to make a “V” shaped rebound here. Considering how strong the preceding downtrend had been (see below), it’s not surprising to see this much choppiness following the FOMC meeting. The bulls have recovered some footing (thanks to Benny), but there is still an undeniably strong downside bias. If the bulls manage to take a stand and succeed here, I expect the resulting rally/short squeeze to be quite significant; this is why I am now long silver.

I expect the choppiness to subside shortly, but in the meantime, I intend to utilize the choppiness to build the Core Position. If silver starts to challenge the downtrend line, I intend to ramp up with the Spec Position to catch the breakout/short squeeze.

[Silver: 1-month]