Gold/Silver: It's time to position for another 'Silver Squeeze'
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Precious Metals edged lower this week, sparked by liquidation in the Copper market on Wednesday fueled by weaker Chinese new bank loan data. The data came in 50% lower than most analysts predicted, indicating that the recovery in China is much slower than planned. We also heard comments from the Fed stating that inflation remains stubbornly above their targets even though recently it has been coming down. Additionally, news that the administration has failed to reach a deal on the debt ceiling ahead of the deadline has investors nervous about a default. The "knee-jerk" reaction in Gold and Silver gives us an excellent opportunity to build positions for a year-end rally.
Daily Gold Chart
The technical backdrop in Gold is much stronger than Silver, with prices holding above the psychological $2000 level and critical support down at $1985. A break below $1974 will begin signaling a near-term failure, and our proprietary level shifting trend traders to the sidelines. At that point, we will want to use call options to maintain upside exposure. Ultimately, we must see Gold close above $2028.4 at a minimum to help negate this week's negative activity.
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Daily Silver Chart
Silver faces tremendous overhead damage and will only negate this week's selloff once a close above the 24.71-24.95 area. Thursday's selloff posted Silver's worst session since February 3rd, where strong employment data reaffirmed the Fed's hawkish stance. On a short-term basis, the technical backdrop shows a "double-top" on the chart. The eight-day exponential moving average (EMA) is set to cross the thirty-four-day (EMA)to the downside, which could result in additional pressure from active short-sellers. The near-term bearish forces will drive prices down to the 50% retracement giving us another excellent opportunity to add to core positions using the December 1000 oz Silver contract. Fundamentally, there is tightness in the physical markets, and mining supply is beginning to decline. We expect that over the next year, demand from solar, electric vehicles, and other technological advances will create the next "Silver-Squeeze," extending prices back to contract highs.
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