It was a volatile week for Precious Metals, with a string of regional banks coming under pressure driving Gold futures near record highs on Thursday, followed by aggressive selling on Friday led by the strong payroll data. The correction in Precious Metals will be short-lived as investors are unwilling to unwind their long positions while buyers have been waiting for this correction to enter the market. Earlier in the week, we sent a note to clients that I wanted to share covering our high-conviction trade ideas that we see value in the futures markets.
Daily S&P Chart
Buy the September Micro S&P 4000 put for $500
- We are experiencing one of the fastest interest rate hike cycles in history and believe the impact has yet to hit the economy.
- We expect the Fed to cut interest rates once an economic slowdown begins. Although popular belief is that rate cuts are bullish, in Jan 2001, the S&P declined over 40% during the next 24 months. In 2007, the Fed began to cut rates while leading to the financial crisis, and by Feb 2009, equities had declined over 50%.
- Equity investors may become cautious as valuations remain at the high end of their historical ranges. At the same time, the credit cycle and financial stability may become strained. We see investors favoring alternatives such as short-term debt instruments over equities to lock in yields without taking all the risk of equities.
Daily Crude Chart
Buy December Micro Crude Oil below $70
- While an economic downturn is rarely positive for energy prices, every story has two sides. The prospects of declining economic conditions have caused OPEC to cut production in an emergency meeting. What is to stop them again? We believe nothing.
- Current EIA Oil inventory levels, Gasoline, and Distillates sit below their five-year averages ahead of the start of the driving season.
Daily Copper Chart
Buy December Micro Copper
- Copper rallied as news broke that China re-opened; however, the physical demand has been inconsistent during prior periods of economic boom. While Chinese demand may be down, it is not down for the count. Historically, Chinese Officials have been quick to provide stimulus to reignite growth, and with prices retesting the March banking crisis lows near $3.82, we find long-term value in the metal.
- Although we expect a small supply surplus in 2023, the electric vehicle revolution and the green energy transition leave Copper potentially in a multi-year supply deficit. Mining companies are already struggling to keep up with the demand. Consider the current trading area a "value zone" targeting a move to $4.25 by year-end.
Daily Gold Chart
Buy December Micro Gold below $2000, targeting $2500
- With fresh uncertainty in the banking sector and a U.S. job market downturn, a flight to safety may be on the table. 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. The action by the Fed is entirely 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 twice 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.
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Daily Sugar Chart
Buy October Sugar 24 Put
- There is no question that with Sugar prices up over 25% YTD coming into May, production concerns from Thailand and export curbs from India may leave prices at elevated levels. However, weather delays from the second largest producer may be short-lived, giving a delayed reaction to harvest pressure. Brazil remains set to deliver another near-record crop leaving a "trap door" to prices.
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.