Hedging gold and silver downside risk

[Wonger]

Hello, im new to this forum and Ive had a look around and Ive not seen anything regarding hedging downside risk on investments in gold and silver, maybe Ive missed it or its in the premium section so im unable to see? Im in the UK and im an experienced trader of 20 years, i use a large UK based broker and im now purchasing physical gold and silver, but would not consider doing this without hedging downside risk, this can be achieved using futures and options, for example, if the price of gold and silver rises say 10% and you are very happy with these gains, but are naturally worried incase the price falls back again, then you can simply sell gold or silver futures at this point until you are confident enough that the price will not fall back down again, the cost of hedging £63570.00 of gold using a futures contract is £80 and £440 has to be put up as margin, the cost of hedging £49250 of silver using a futures contract is £90 and £980 has to be put up as margin, these futures can give you 100% hedging assurance, the other route is using options which have different strike prices and future dates of expiry, these can offer protection for differing duration and levels of downside risk of a members gold or silver holdings depending on the risk preference, ie they can hedge downside risk at current prices and pay alot or hedge downside risk of only more than a 10% price fall and pay alot less, just thought i would mention this and if there is any interest in this subject, i would be more than willing to help out regarding info or maybe even set up a group hedging account to go along with your group orders if enough are interested, any gains are tax free too, I have exchanged a few messages with Backyard Bullion since joining here.

I think that we will now see a rally in gold above $1400 with a corresponding rally in silver,  after that i see a gold drop to around $600-700 and silver around $4-5, this will be to clear everyone out apart from the most steadfast holders, im buying now and hedging once this rally is over as i fear once this drop gathers momentum, physical will not be available, same as in 2008, have you any information on physical shortages already starting? ive have some evidence, im still researching as although i have long been trading gold and silver futures (i purchased paper gold at $400) and options, ive never actually purchased physical (boo goes the forum) but now i am,  What i can say without taking anything else into account and purely working with the technical gold chart, is that its a certainty that the gold lows in December 2015 will be breached, its taking longer than i thought it would but thats markets for you, so are many here hedging their downside risk? 

[vand]

PMs are a hedge in themselves against financial assets and economic/geopolitical turmoil. So you are suggesting hedging your hedge

 

[Wonger]

Yes thats correct as in times of severe market stress the dollar rallies from safe haven buying and thus precious metals decline because they are priced in dollars as was witnessed in 2008 with gold silver seeing 40-60% declines.  

[vand]

what you are talking about is trading, pure and simple. 

You sound like someone who wants to have their cake and eat it! If you are convinced that gold is going to new lows, then don't hedge a long position, short the damn thing. duh.

[Wonger]

Being long an asset class with no downside hedge protection which history has shown will fall 40-60% in severe market stress is not a wise decision, you sound un-hedged and worried!

[Auricsstash]

Hi Wonger interesting perspective, may I ask why are you buying physical gold and silver if you expect a 40/50% decline?

[Stu]

Is anything a certainty with technical analysis? If so I think we should all get into this and make our fortunes. 

[Wonger]

Hello Auricsstash, the reason im buying physical now is its easily available, during the market stress in 2008 the physical wasnt available anywhere near market prices and waiting lists were very long even if you were willing to pay way over the price, it seems at its worst waiting lists were 2 months and premiums were 40%, so im buying now and hedging downside risk when the time comes (as i think were going to rally short term here) the cost of hedging is small and means i have my physical and i will look to remove the hedges when i think were around the lows, its a safer play rather than trying to buy physical at much much lower prices and finding i simply cannot buy any, i think the financial system will start falling apart by september, central banks will blame this on war and trumps policy, so im with you guys in precious metals to preserve wealth, i fear its going to get very nasty indeed and 2008 was just a warm up act.      

[BackyardBullion]

Surely if financial systems start collapsing gold and silver prices will increase as the value of the dollar weakens and inflates. Also - wouldn't investors flock to precious metals as a safe haven rather than cash, stocks and government bonds? Surly this would increase the prices of metals not decrease them!?

[Wonger]

Hi Backyard, during market stress huge amounts of capital flow into the us dollar for safe haven us assets, mainly us treasury bonds (i know crazy as it is as they owe 21 trillion) this causes the dollar to rally and precious metals to lose value, there is huge evidence that us treasuries are going to rally soon and interest rates will be taken negative

[BackyardBullion]

Negative interest rates? I thought we were about to see increases in interest rates!

[vand]

You are assuming that the USD is the automatic safe-haven of choice, but what happens when the crisis is a loss of confidence in the Dollar itself? Last time I checked America's debt isn't getting any smaller.

All fiat monetary systems are ultimately doomed to failure, and the current system is very long in the tooth. The next crisis will be a systemic failure of the petrodollar system that has underpinned the global financial system for the last 45 years.

[Wonger]

I have also bought a very small amount of gbp against both usd and euro on a long term futures contract to compensate for the very poor exchange rate we have at the moment when buying physical, in 12 months times i think the gbp exchange rate will be alot different after brexit has been overturned ?

[Wonger]

Vand yes i agree, but i think the dollar will rally huge before it collapses and will go to unimaginable high levels first, and physical will go to unimaginable lows, this is why i posted this subject, i follow other sites and i know lots of people are really underwater on precious metals purchases and some are throwing in the towel for suffering huge losses, i fear there is alot more pain coming, much more, so if i can help just one person to hold onto their stack all this typing we be worthwhile, im very anti banks, public have been losing 8% per year on savings in real terms the last 10 years, most dont even realise 

[BackyardBullion]

I think the biggest problem with this kind of speculation is that it is just that, speculation. 

I for one (and I think a large proportion of the forum membership) buy PM's to preserve our buying power and wealth rather than to make cash on short term futures. 

For me it is about saving money, not in a bank - like you say you lose money just keeping it in a bank. 

[Wonger]

Central banks are on different schedules so they have an excuse to move fx markets against positions, the us fed is still expected to raise a few more, but the dollar rally looks over for the time being, this is another reason i expect a gold rally to $1400+, even stackers laugh at me about this rally coming, sentiment is quite low, but hardly surprising given price action    

[Wonger]

Its just a personal decision, if a member doesnt want to be faced with a huge paper loss if prices plummet for a while, then they can hedge some risk out, believe me i know what its like to be very underwater on positions week in week out until they come good again, its not good especially when the wife knows ?  

[Wonger]

There is an index called SIFI its the 20 largest systemic financial institutions, its down 20% the last time i looked

[Sherabnamdhak]

The SIFI is not that well known to the general public but I agree with you regarding the Fed’s policy on bond interest rates and currency manipulation. Sticky end comes to mind. I am increasing my physical gold holdings both numismatically and bullion wise. I feel that regardless of market movement the possession of physical asset will always bring a level of security. 

[onlyroadtoheaven]

47 minutes ago, Wonger said:

 and some are throwing in the towel for suffering huge losses, i fear there is alot more pain coming, much more, so if i can help just one person to hold onto their stack all this typing we be worthwhile, im very anti banks, public have been losing 8% per year on savings in real terms the last 10 years, most dont even realise 

Woohooo …. this makes me want to buy more. Those nutty youtube videos of silver to da moon over the past couple of years have made me want to buy less! Be fearful when others are greedy and greedy when …… well you all know the rest.

My gut feeling after a fair bit of research and anecdotal is that PMs will rise towards the end of the year and continue at a steady pace. Sentiment is poor at the moment which I believe is a good thing. Hedging is a gardening term to me so I am sure I would still make a loss if I tried it in the financial world without proper research.

Cripto has burst so who knows what the next bubble will be  …… PMs have to be in with a shout.

Interesting subject anyway. So far its the first one in a while that hasn't ended in an argument ?

[BackyardBullion]

2 minutes ago, onlyroadtoheaven said:

Interesting subject anyway. So far its the first one in a while that hasn't ended in an argument ?

Yet...

[vand]

56 minutes ago, Wonger said:

Vand yes i agree, but i think the dollar will rally huge before it collapses and will go to unimaginable high levels first, and physical will go to unimaginable lows, this is why i posted this subject, i follow other sites and i know lots of people are really underwater on precious metals purchases and some are throwing in the towel for suffering huge losses, i fear there is alot more pain coming, much more, so if i can help just one person to hold onto their stack all this typing we be worthwhile, im very anti banks, public have been losing 8% per year on savings in real terms the last 10 years, most dont even realise 

It's possible, but I think you are expecting things to play out too similar to the 2008-09 crisis, and it won't necessarily be so. There is a saying that Generals are always fighting the last war.

as BYB says, you are throwing out a lot of speculation. That's fine, and there is a place for it, but this is the silver forum, not the trading forum. If you have convictions about how the markets will play out then more power to you. Most of us are here not to speculate in the financial markets but precisely because buying physical PMs acts as an antidote for that.

[kimchi]

@Wonger I think you'd possibly gain a lot from reading posts on here about physical versus paper by @sixgun

[Wonger]

Gold is down $109 since 11 april, if you were hedged you could buy more gold right now with the profit from the hedge and your stack would be bigger, this cannot be viewed as increasing risk, kimchi, i will take a look, cheers

[Wonger]

For those that want to know the minimum futures hedge on silver it costs £9 to hedge £4925 of silver with margin requirement of £98, so £107 up front gets you hedged with the broker i use