Over the past month the gold and silver markets have taken a good drubbing. Silver has dropped from 19.50 to 15.00 and gold from 1227 to 1044 as the US Dollar has finally rallied after a long drawn out correction.
Since the advent of ETF’s market players have been able to invest in gold and silver for the first time without using Futures and investors have made the gold and silver ETF’s a very popular way of investing in the precious metals. The advantages of ETF’s are many versus buying a futures contract. Investors can hold them for the long haul, there is no contract switching every few months, investors can buy as much or as little as they want and there is no need to worry about a leveraged position. But are there any disadvantages to ETF’s versus a futures contract?

The chart below is the silver ETF with the symbol (SLV). Because the precious metals are a global commodity and one that has been in the spotlight lately, like most commodities they trade on a world wide scale 22-24 hours per day. Since ETF’s only trade during stock market hours there can be drastic changes to price when local markets open up the following day.



The arrows I’ve drawn show how the price of silver has been vulnerable to severe price drops on the open of trade in these stocks. The recent severe correction in silver is an excellent example of how prices can open much lower than the previous day’s close. Technicians call them price gaps when they appear on a chart pattern. Investors who are using the ETF’s to be long the metals call them EQUITY gaps because of the drop in price that occur affect their bottom line.


Read the full Post

Great Post. I appreciate you taking the time to highlight the differences between ETF trading and holding Futures contracts. I have had success trading the United States Natural Gas Fund (UNG) often as well as the United States Oil Fund (USO). However, I have yet to trade Futures contracts. I would like to as my fund grows in size. Is there any good literature you could recommend?

Batman: there is lots of free info out there on futures. I am launching a futures trading signals service where you will learn how to trade (technical analysis) and get trading alerts with members chat room, and email alerts. I will be giving out buy and sell signals for different commodities and indexes and you can either trade ETFs, options or futures. Should be a great service. You can optin to me notified when I launch it here: www.TheTechnicalTraders.com. Im only taking a limited amount of members so we dont move the market 100-200 traders. I current have over 800 signup for it pre-launch. If you want in down the road I will be sure to get you in as your found me on TLOT.com