Gold/Silver: Your next buy level and the metal to watch
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold and Silver have found some degree of complacency at $2000/oz and $25/oz with what appears to be two straight weeks of a tight trading range. On Wednesday, the Precious Metals markets will experience their next "volatility event," where the CME Fedwatch tool predicts an 87.4% chance of a 25 basis point rate hike. Jerome Powell's comments in the press conference will be critical as volatility will trigger at any moment. Precious Metals traders should welcome any sign of volatility as another buying opportunity, as the market has already priced in 75 basis points in rate cuts by year-end. Central Banks globally remain in the process of reducing their exposure to U.S. Dollars while stepping up their Gold reserves. The combination of falling interest rates and Central Bank purchases allows us to increase our 12-month price target to $2500 on Gold and $32 on Silver.
CME Fedwatch Tool
Daily July Silver Chart
On a short-term basis, the technical backdrop shows Silver signals a potential bearish "head and shoulders" chart pattern. While the setup is still developing, it is essential to identify from a risk management standpoint, especially if you are an active trader in the market or have a sizable long position. Looking at the Silver market since the March 10th low, the eight-day exponential moving average (EMA) has worked exceptionally well in helping Silver traders from a risk management standpoint, and the trigger crossing the thirty-four-day (EMA) as the trigger for establishing additional long positions. Now that the market is in a consolidation phase, we will revert to our "trend neutralizer" level for further risk management, as a close below $24.34 will take Silver to a "neutral trend."
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Daily June Gold Chart
The technical backdrop in Gold shows a similar picture to Silver. Without a continuation above $2060, traders should be cautious heading into another extended week of volatility. A break below $1974 will begin signaling a near-term failure, and our proprietary "trend neutralizer" level shifting trend traders to the sidelines. At that point, we will want to use options to maintain upside exposure. An example that we find value in is the August 2050-2150 call spread for $2500. It carries a 3:1 risk-to-reward ratio and has 89 days until expiration.
Daily July Copper Chart
After the recent price breakdown due to a disappointing Chinese reopening, we expect Chinese Officials to step in and provide additional stimulus to help support their economy. That measure makes us believe we should see a sharp price rally in Copper and the Australian Dollar in the near term. The long-term bull argument with the electric vehicle revolution underway and the energy transition leaves Copper in a supply deficit. Mining companies are already struggling to keep up with the demand. Consider the current trading area as a "value zone" for long-term positioning and support at $3.82 as an area to add, targeting a move to $4.50 by year-end.
Having the flexibility to enter and exit the market quickly makes it essential for Precious Metals investors to have a futures trading account alongside their core Physical Precious Metals holdings. If you are interested in speculating on the rise and fall of the price of Precious Metals on a shorter-term basis, such as two weeks or two months, or If you have never traded futures or commodities, I just completed a new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. You can request yours here: Trade Metals, Transition your Experience Book.