Are precious metals overbought

S2N spotlight

I came across a headline the other day that Gold is at one of its most overbought RSI highs. True extremes have very small sample sizes so they are not easy to model reliably.
Instead I built a more generalised RSI overlay that reduces your holding to zero when it is above 80 and takes your holding to 2x when the RSI is below 20.

I am sure you are expecting to see strong outperformance by our overlay strategy. Wrong.

There is some marginal improvement, but for all intents and purposes, trading a basic RSI strategy adds “no value”.

Let us look at Silver. After todays open the sell will show up on the chart as it has just been triggered. 

Once again, there is almost zero improvement.

However, I am going to offer a slight deviation from my comments above. Silver is extremely overbought on a shorter-term window than my above analysis, so I am tactically a seller of some silver at these levels. It’s up over 51% for the year so far. This is more opportunistic than macro.

S2N observations

On the 25th of August I recommended buying a put option on the S&P 500. I never mentioned how much of the portfolio to invest; I usually invest 1% of the total portfolio value at a time, often investing up to 5% depending on how defensive or aggressive I want to be.

We all know how the markets are; by almost any valuation method, they are very expensive. There are so many risks on the world stage currently, with the markets shrugging every risk off as if it is nothing. It looks like the US government will be shutting down in the next day or two, as Congress is unable to pass the necessary bills to pay its bills.

The SPY 500 PUT expiring in June 2026 is trading at 6.01 I never mentioned in the previous letter that I am referring to the strike at 500. So I am adding another 1% of the portfolio at 6.01 to take the average cost for 2% of the portfolio to $6.70.

2N screener alert

The Israeli shekel was the only 3 Z-score alert yesterday. Clearly the talk of a peace deal is driving the currency.

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