By Nigam Arora
Based on your own risk preference, a good compromise may be buying the iShares Silver Trust ETF /zigman2/quotes/205744453/composite SLV -0.50% . Please note that the risk reward in SLV is not as favorable as GLD. SLV may see about 40% more upside than GLD, but 100% more downside than GLD.
Investors may also consider the VanEck Vectors Gold Miners ETF /zigman2/quotes/206399889/composite GDX -0.28% . GDX has about 100% upside compared to GLD, but only about 60% downside compared to GLD.
As a full disclosure, in totality we have large short positions in precious metals and miners with large unrealized gains. These short positions include GLD, SLV, Silver Wheaton , Barrick Gold , Harmony Gold Mining /zigman2/quotes/203958044/composite HMY -4.83% , Coeur Mining /zigman2/quotes/202240707/composite CDE -0.40% , ETFS Physical Palladium /zigman2/quotes/202108695/composite PALL +4.78% , and ETFS Physical Platinum /zigman2/quotes/206361625/composite PPLT +1.77% . We are hedging these positions 100% with GDX before the end of the day. It is simply prudent to control risk.
Italian referendum details
Italians will vote on a constitutional referendum on Dec. 4. If approved, expect the most extensive reforms in the Italian government since the end of monarchy. Italian Prime Minister Matteo Renzi is the architect of the referendum. For months the polls had been in the “yes” camp and the consensus continue to be a “yes.” However, four polls published on Nov. 18 show the “no” camp was leading. Under Italian law, these were the very last polls allowed.
After Brexit and Trump, it is simply not prudent to 100% believe the polls or the consensus.
If Renzi loses, it may indirectly start a sequence of events leading to disintegration of the eurozone. There are three opposition parties in Italy, all favor exiting euro. As a full disclosure, we have a position in inverse euro ETF /zigman2/quotes/206913068/composite EUO +0.23% and also short position in euro ETF /zigman2/quotes/208198139/composite FXE -0.12% .
At least in theory, if the “no” camp wins, it should have a major negative impact on the U.S. stock market, the euro, Italian stocks /zigman2/quotes/207981587/composite EWI +1.81% and European stocks /zigman2/quotes/207911216/composite HEDJ +1.33% , and a major positive impact on U. S. bonds, the dollar and the yen.
In plain English, you could wake up on Dec. 5 to see complete reversal of trends in place since Trump's election. Watch out for downside in ETFs /zigman2/quotes/209901640/composite SPY +1.22% , /zigman2/quotes/208575548/composite QQQ +1.83% , /zigman2/quotes/209961116/composite IWM +1.08% , /zigman2/quotes/200202000/composite TBT +0.05% , /zigman2/quotes/209898032/composite TBF -0.27% and /zigman2/quotes/208659456/composite YCS -0.14% , as well as upside in ETFs /zigman2/quotes/206026314/composite TLT -0.04% , /zigman2/quotes/209018185/composite TMF +0.04% and /zigman2/quotes/200725153/composite FXY +0.07% .
Caution
Be aware of cross currents. Before buying, please read “Potential gold-import ban by India could be biggest bombshell since Nixon.”
Please keep in mind what around here has come to be affectionately known as Nigam's Second Law of Investing, "No one knows with certainty what will happen next."
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article and/or may take positions in securities described in this article any time. All recommended positions are reviewed daily at The Arora Report and subscribers may receive additional information in real time not available to the readers of this article.
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