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Gold/Silver: Jack be nimble, Jack be quick

Commentaries & Views

Jack had two opportunities to buy Gold and Silver this week, Wednesday and Friday. If you receive our Precious Metals research daily, you would know we expect volatile to lower prices heading into the May 3rd Federal Reserve meeting. Fed committee members continue reiterating that they "have more work to do," while Fed Funds futures are pricing in one more rate hike beyond the May meeting. The action by the Fed is completely parallel to 2018. At the Fed's last hike in the 2018 cycle on December 20th, when the S&P was -17%, the bank said it planned to hike two more times in 2019. That never happened. Instead, they cut three times that year, with the first coming in July. You can see how Gold played out below, resulting in a $700 rise over the next 18 months.

Weekly Gold Chart

Daily Gold Chart

Despite a 1.5% decline on Friday, we remain cautiously optimistic as most technical indicators show the market correcting from "overbought territory," as seen through the slow stochastic indicator. Without a continuation above $2050, traders should use any close below $2000 as the first warning sign that a correction could be brewing. A critical level we are watching is the March 21st downward spike low to 1965.9, now the first significant support. A break below 1965.9 will begin signaling a near-term failure, and our proprietary "trend neutralizer" level will fast approach $1957.8. Any close below $1957.8 will shift trend traders to the sidelines, and they should wait for the next bull or bear trading signal. Therefore, we would use that correction to re-establish long term positions in the December contract.

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Daily July Silver Chart

On a short-term basis, the technical backdrop shows Silver extending the "Bull flag pattern" we identified several weeks back while continuing to achieve new swing highs and breaking through the consolidation zone seen from December through February. The eight-day exponential moving average (EMA) has worked exceptionally well in helping Silver traders from a risk management standpoint and looking to reduce Silver exposure on the first close below. Traders then wait to see if an extended selloff occurs below our "Trend Neutralizer level" at $23.54/oz. If that event happens, we could be setting up for a multi-week correction and retesting the $20/oz. seen back on March 8th. However, we will begin establishing new "core long positions" by scaling down to $20 in anticipation of the Fed's first rate cut where we could see an upward explosion in both Gold (up to $2500) and Silver on up to $35/oz.

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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.