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Gold/Silver: Don't chase; wait for a signal

Commentaries & Views

Volatility has widened over the past two weeks, with "average true ranges" in the number of commodities we track all hitting pandemic level highs. The only difference is that it is the mirror opposite, with prices shooting higher instead of lower. For instance, coming into Friday's open, Wheat prices have gained 40% on the week, along with Heating Oil up 28% and Gasoline up 19%. The economic setup is more for stagflation with a pivot to deflation in the coming months. These two dominant market regimes will allow us plenty of opportunities to buy dips in Gold, Silver while shorting U.S. Equities.

Daily Gold Chart

The daily chart supports Gold inching higher with two notable standouts. First, we are back at major 3-star resistance, noting two technical failures in November 2020 and January 6 of 2021. Additionally, Gold is operating as a safe haven with at least $100 of geopolitical risk premium built into the pricing, while key correlations to the U.S. Dollar remain at 77%. Meaning if the ECB intervenes in the Euro currencies fall while tensions ease, you could see a considerable setback in Gold prices. At that point, we will begin to reenter as Gold historically bottoms right after the first rate hike in a cycle. Therefore don't chase; professional traders wait for a signal. To further help you understand the macro environment, we created a free "Gold Trends Macro Book". This monthly updated booklet will provide you with all the quantitative analyses of the precious metal markets. You can request yours here: Free Gold Trends Macro Book.

Daily Silver Chart

Surprisingly, Silver has yet to play catchup with Gold, with prices trading in the mid-twenties. The weakness could be due to logistical issues on the manufacturing front and demand destruction from the supply chain bottlenecks. The most likely scenario is that when Gold takes its foot off the gas, Silver will give us a new entry point. Do not take me as a "Bear" on Silver; if it was going to launch to $50, it probably should have done it by now, is all I am saying.

Daily S&P Chart

The S&P continues to signal a series of lower highs, and with CFTC positions showing record net longs, it makes sense that people will chase every bounce to the long side. We will continuously short futures and buy puts on any significant bounce higher. It will take until the middle of the second quarter for growth concerns of the economy to get priced into the markets. 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 or the S&P 500." 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.

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.