Gold/Silver - Are you selling the rip?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Two weeks ago, I wrote an article on Kitco titled "buy the dip," where we recommended clients to position in Gold at $1785/oz and $22/oz in Silver. The premise was simple, the market at that time was pricing in peak hawkishness in treasury yields, with some analysts and banking executives calling for four, five, or even six rate hikes in 2022. They call it "the some of all Fed Fears" with the battle against inflation. The Fed doesn't realize that raising rates will not solve their inflation problems. If you view food, housing, and energy prices from a commodity trader's perspective, it is easy to see the problems go beyond the Fed.
Looking at energy prices, in 2019, the U.S. had achieved energy independence and became a net exporter. In contrast, today, we have seen U.S. production levels collapse, and our dependence on OPEC is back in the spotlight. Agricultural food prices have elevated due to decreased crop yields from droughts in northwestern plains, while coffee prices should hold steady due to a freeze in Brazil that wiped out 20% of production. Meat prices will remain elevated until labor shortages in packing, processing, and distribution are solved. Due to the chip shortage, automotive prices will hold near record highs. Elevated home prices will remain caused by population exodus from major cities due to rising crime, taxes, and unfavorable political agendas, making housing shortages in areas where people see a higher quality of life. It is pretty easy to see that raising interest rates will not solve these issues.
Daily Gold Chart
We believe that the rate of change in economic growth will begin to stall at about the same time as that first rate hike. That will trigger a deflationary cycle in the economy and slow down consumer demand. The demand decrease reduces inflation; however, sticky inflation will remain in the areas I outlined above. The Fed will become concerned that the rate hikes are doing more damage than good similar to 2018 when they over-tightened and ultimately cut rates. I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold but can easily apply to Silver." 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.
Daily Silver Chart
Now back to Gold and Silver, should you be selling the rip? We advised our clients to take profits near key resistance levels this week. The chart pattern for Gold continues to form coiling action suggesting that the most likely scenario is that we continue to remain in a trading range between 1785 on the downside and 1855 on the upside. Silver has been much more constructive however needs a continuation above $25 to add fuel to the rally. The volatility in U.S. Equities should have spillover effects that allow for fast entries and exits in the Precious Metals. That is why we choose to take profits on futures while holding "out of the money" call options if a breakout occurs. We will be outlining another "bull call spread" in Silver going out to July and scale in levels this week for futures contracts. Many of you ask why we prefer the futures over other trading vehicles? The short answer is that futures trade nearly 24/hours, closely mirror the spot price, offer capital efficiency, have a more favorable tax treatment, and significantly more liquidity and volume than direct ETFs. To learn more, we completed a new educational guide that answers all your questions on how to transfer your current investing skills into trading "real assets," such as the 10 oz Gold futures contract. You can request yours here: Trade Metals, Transition your Experience Book.