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CPM Trade Signal - Feb. 23, 2022

Commentaries & Views

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Time Stamp
Prices as of 9:10 a.m. EDT 23 February 2022 $1,902.20 (Basis the April 2022 Comex Contract).

Recommendation: Buy

Initial Target Price / Range: $1,920 - $1,940

Initial Timeframe: 24 February 2022 to 4 March 2022


In the last Gold Trade Recommendation CPM outlined three scenarios for the Russian belligerence toward Ukraine, the United States, and Europe. We discussed the likely reactions gold might have in each one.

  1. Russia invades
  2. Russia backs off in response to diplomatic efforts
  3. The stand off continues.

Russia’s announced recognition of its annexation of Dunetsk and Luhansk, and that it would send more Russian troops and arms into those Ukrainian provinces on Monday led gold prices to rise to $1,918, spend some time around $1,912, and then subside. Prices have dropped as low as $1,890 - $1,891 in the two days following this Russian pronouncement and have traded between those lows and $1,907 or so.

Broader financial markets also reacted with relatively subdued price moves, compared to what some market commentators suggested.

The market reactions of gold and other assets to Russia’s Monday pronouncement and the relatively weak U.S. and western reaction to it probably are indicative of what to expect as the drama unfolds.

It still seems most likely to CPM that the stand off will continue, for a few more days if not longer, keeping the world and markets on edge. As some point Russia seems more likely to invade than to agree to a diplomatic solution.

In this scenario gold seems most likely to bounce between $1,880 and $1,910 while the diplomats stall. Assuming Russia makes a more violent, concerted military invasion of Ukraine gold prices seem more likely to rise in a spike, as they did on Monday night and Asian trading on Tuesday, before dropping back. Prices might spike into the $1,920 - $1,940 range the next time – higher than they did earlier this week, but may not move much higher. This view is predicated on the relatively muted price response earlier this week. Prices then might drop back to the range of $1,890 - $1,910.

CPM has been advising its investor clients to be long gold at present with a put in place to protect against scenarios 2 and 3. The put might be paid for with a call spread.

One-Month Price Range: $1,780 - $2,000

As long as the Russian military positions remain on the border, or an attack occurs, the potential for a sharp spike higher is possible. Following an actual invasion by Russia or a diplomatic resolution, prices may well fall back below $1,800. If Russia invades and the world decides it is not a critical issue central to the world’s economic and political balance, but actually shifts power away from Russia to the United States, the dollar could rise and tensions dissipate, and the price falls back to late January/early February levels. Or if Russia finds a diplomatic way out, prices might drop like that. Prices were at these levels two weeks ago.
 
Three-Month Price Range: $1,750 - $2,000

Gold would seem more vulnerable to further weakness in March and April regardless of the resolution of the Russian aggression toward Ukraine. Over the next three months this crisis may be resolved. Meanwhile U.S. benchmark interest rates are likely to rise. Beyond April year-over-year U.S. Consumer Price Index percent changes may start to show declines, measuring 2022 price levels against high 2021 levels. The combination of these three trends could lead to prices subsiding.

CPM has one-month, three-month ranges and eight-quarter quarterly price projections with greater discussion of the factors behind CPM’s analyses provided in CPM’s monthly subscription service, the Precious Metals Advisory.

While short-term trade recommendations provide high risk – high reward opportunities for investors, it is difficult to capture the complex web of factors affecting precious metals prices and the nuanced CPM analyses of these factors that goes into our firm’s price projections. In addition to these short-term outlooks, CPM Group provides clients enhanced trade recommendations that include one and three month price projections, as part of our Retail Investor Program. Contact CPM at info@cpmgroup.com for details.

Notes:

Initial Target Prices and Timeframes are just that: Initial. If CPM does not issue a new Recommendation during or after that time it indicates that CPM is maintain the posture in the most recent Trade Recommendation.

Discretion should be allowed at +/- 0.20% of the price at the time each TR is issued from the target. Recommendations are valid until the target date or a new Trade Recommendation or message is issued by CPM.

CPM’s preferred investment strategies use physical, futures, forwards, and options.


Disclaimer - Past performance is no indication or guarantee of anticipated future profits, and neither Kitco Metals Inc. nor CPM Group can accept any liability or responsibility for any loss suffered as a result of gold price fluctuations. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000. Therefore this trade recommendation does not give rise to rights to claim compensation under the Financial Services Compensation Scheme. CPM Group is a registered CTA with the U.S. NFA and CFTC. At times the principals and associates of CPM Group may have positions in the precious metals, commodity, and equities markets. CPM Group also manages investment and industrial positions in markets for its clients.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.