HardAssetsInvestor

Written by Drew Voros  |

November 03, 2011

Bearish Brandt Sees Bullish Signs Of $50-60/oz For Silver

Details

However, CEO of commodity trading firm Factor LLC doesn’t paint as bright a picture for gold.

Peter L. Brandt is the CEO of Factor LLC, a Colorado Springs, Colo.-based proprietary trading firm established in 1980, and primarily trades in futures contracts as well as commodity-related ETFs and individual stocks. Brandt has long been an irritant to precious metals bull, citing their views as “irrational.” So when Brandt’s firm recently called for a breakout of silver to the upside, we thought this would be a good time for Hard Assets Investor Managing Editor Drew Voros to check in and see what changed Brandt’s views.

Hard Assets Investor: You’re typically the guy who doesn’t jump on the precious metals bandwagon. Now you’re predicting a silver breakout. What’s your reasoning?

Peter Brandt: I get accused of being a precious metals bull’s worst enemy, but that’s not necessarily true. Our firm has made a lot of money over the years by trading gold and silver from the long side. And we made a lot of money during the run-up in gold in July and August. But then all of a sudden, we saw some things in silver which were extremely concerning. We felt the silver market had reached a termination point of extreme significance when it came to volume. We looked at the volume figures around the world in futures markets and some of the ETFs. What we saw was that an eight-year supply’s worth of silver exchanged hands over a seven-day period. We felt the market was done — it was topped. And we put out a notice on April 29 that the silver market was dead.

But we recently started getting interested in the long side and we went long silver on Oct. 25. We see the possibility that silver could go to the high $50s, possibly the $60s. And we put out some communications on that on the 25^th feeling that silver was a buy. We feel that it should probably not drop. There’s a danger here that silver has got to hold some of these current levels. If it starts weakening up, we’ll change our mind real quickly.

HAI: What weak levels are you talking about?

Brandt: The level that we would really be looking at would be $29.90, $29.80 in silver. If it goes below that, the market probably has significant technical problems and we just read this bullish case wrong. But right now, we believe there is a bullish case. And until proven differently, we’re going to assume the bullish case and trade it that way.

For us, the burden of proof right now is on the bears. We trade price. As a proprietary trading house, price is king to us. It’s the only thing that matters to us. If we can get silver back into the area of $33.50 or so, we will do some additional buying. But if the market goes below $29.80, then we have to change our mind and reinterpret its technicals. And again we’re technical traders; that’s what we look at.

Now gold, on the other hand, we do not see as technically positive. Gold for us looks like it could weaken. We really never got the kind of positive signal in gold that we did in silver. We have no position on in gold. If we did, we’d probably short gold. So we’ve got a little bit of a conflict in our analysis.