Gold/silver strategies for 2021
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Market jitters were the underlying theme in this week's trading environment, which is understandable given that we are days away from the U.S. election. Multiple central bank meetings, i.e., ECB, caused Global markets to play off one another, with the Dollar signaling "overbought" as the likely catalyst for gold/silver correction this week. The other near term "risk" to gold/silver would be a contested election that would lead to another stimulus delay. Don't worry; the massive fiscal wave will come, the money supply will continue to surge, and higher inflation will show up sooner or later.
This week I wanted to look at position sizing in the metals markets and concentration of bets, which often gives us clues to how the price could play out. I am noticing that the small speculators positioned already, the proprietary traders are trading away, the locals are mostly long; however, CTA's, hedge funds, and money managers are on the sidelines. They tend to reduce bets coming into large, unpredictable events i.e., elections and fed meetings that carry massive volatility. Just think if you were a hedge fund manager banking on the compensation of 20% of profits in your fund, why would you risk it on a coin toss election? Responsible fund managers would wait for the outcome and then reposition based on a three-factor model, price, volume, and volatility.
If you have been working closely with us, we have been structuring in long-dated option call spreads in silver, going out to April 2021 while stacking futures positions at critical levels of support in Gold and Silver. The reason is that we can use volatility to build core positions while playing the risk ranges and already be pre-positioned for the "breakout." We believe that once Gold and Silver start to take off again, these fund managers will rush to enter back into the metal at an alarming rate. The breakout will cause a more accelerated move higher in silver and a potential for another blow-off top like witnessed in 2011. The last thing I want my clients to feel is that they "missed the boat."
With 2021 around the corner, we are sending out a complimentary 2021 Futures Calendar & Reference Guide with a limited supply. The guide is your go-to resource for government & industry report dates, contract specifications, futures, and options expiration dates. *Available to U.S. residents only. You can request yours here: Blue Line Futures 2021 Pocket Calendar.
Micro Gold futures strategy
This strategy builds a core exposure in gold to combat an inflationary environment in 2021. We suggested that our clients consider using FOUR Micro 10 oz December Gold contracts per $25,000 and buying TWO at 1910 and TWO at 1855, with a stop at 1790. Doing such would ideally risk $3,700. We would look to a gold first quarter target of 2275/oz, which would allow for a profit of $15,700.
I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold," which you should print out. The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Gold.
Mini Silver futures strategy
We suggested that our clients consider using 3 Mini 1000 oz December Silver contracts per $25,000 and buy purchasing ONE at 23.30 and ONE at 21.90 and ONE at 20.30 with a stop at 18.80. Doing such would ideally risk $9,110. We would look to a silver target of $40/oz, which would allow for a profit of $54,500.
Silver Options Strategy
Therefore, the strategy is to purchase the April 2021 Silver futures $29.50 call option while selling an April 2021 Silver $35.00 call against it. The plan will create a calculated risk Bull Call spread and costs $3,500 while your maximum gain would be $27,500 if silver futures close above $35/oz at expiration on March 25, 2021. We believe this strategy achieves a low-risk high reward profile. If you would like to be up to date on the developments and strategies we are deploying, please register for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up.