Gold/silver: did you buy the top?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
What an incredible week in the futures and commodities markets fueled by elevated emotions, headline risk, and all-out panic buying. In volatile weeks like the last two, I often have to step back and observe rather than attempt to be a hero and jump in. This week saw some of our self-directed trading accounts double and triple their account balances, only to chase the top and end up halved by Friday's close. The "FOMO" wasn't only in Gold and Silver; it was in Crude Oil, Gasoline, Palladium, Platinum, and Wheat. Remember that a good trading plan needs to be consistent, unemotional, and driven by a patient go-anywhere strategy. Regardless of the outcome of the Russia/Ukraine conflict, the economic setup remains the same. We will continue to see 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. How do I know we will be able to "buy the dip"? Well, those emotionally charged individuals who bought the highs will puke out and sell the lows the way they always do. It's the nature of the beast.
Daily Gold Chart
I can admit from last week's article that the previous resistance points in November 2020 and January 6 of 2021 didn't stand a chance of holding with the Gold Volatility Index spiking to 33. Historically Gold's volatility usually trades within a band of 15-20, so let's call that the "investable bucket." That is where you can accumulate your physical Gold and Silver without getting killed on premiums, or you can go big on position sizing knowing that volatility is low. When you get 20-30 volatility, that is where you are most likely are going to get frustrated with your trading. Traders will panic to buy, feeling like it is a "this is it moment," only to have the market reverse lower, and then the market settles down, and you realize you overpaid for your investment. When we get to +30 volatility as we have right now, people tend to make irrational decisions and violate all trading principles that they swore they would never do again. 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
Silver attempted to play catchup to Gold this week, with the Gold/Silver ratio dropping from 80:1 at the start of the month to 74:1 on Wednesday. Yes, it should be something closer to 20:1, but let's focus on the market we have, not the market we want. This upcoming week should see the Fed raise rates, and that increase in volatility should give us another opportunity to buy the dip in Silver. A few levels we are looking at adding Silver exposure for the July contract will be $25.05/oz and $24.35/oz.
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.