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Gold/Silver: Check out this gold seasonal strategy

Commentaries & Views

It was another challenging week for Precious Metals, with Gold futures trading back near one-month lows. At the same time, it is hard to believe that with a downtick in headline inflation data and an uptick in initial claims, Gold cannot sustain a rally. Realistically Thursday's data print should have marked the "bottom," and August's three-week seasonal bull market should be well underway. Looking to the Far East, headlines out of China show a deteriorating economic outlook and increased pressure on policymakers to boost monetary and fiscal support. Last Tuesday's Chinese CPI headlines delivered a deflationary -0.3% that will become the wake call for additional stimulus. Remember, China is the world's second-largest economy and one of the largest consumers of commodities and natural resources. Once the stimulus happens, Copper should bottom, and Silver should reverse higher.

Daily Silver Chart

It has been a rough August for Silver investors after falling 3% last week and an additional 4% this week. If you look at the previous three months of price action, it is simple to see that Silver remains comfortably within a $4 price band with $22 as support and $26 as resistance. The 200-day moving average provided little support and now sits near $23.50. Traders should be cautious about placing additional bullish bets until we have definitive bottoming action or a technical reversal on the charts.

Our long-term thesis remains that tightness in the physical markets, a decline in mining supply, and solar and electric vehicle demand should offset any potential for prices to decline below $22. Strains on the electrical grid and the almost certainty of additional Chinese stimulus should help cement a floor on Copper and Silver prices.

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Daily Gold Chart

Monthly Seasonal Chart

Like Silver, Gold futures have struggled, slipping another 1.4% on the week, and have repeatedly been a victim of a stronger U.S. Dollar and rising Treasury Yields. Seasonally Gold futures tend to make a near-term bottom in the second week of August and generally rally until the last. This tendency has occurred in 12 out of the past 15 years. Ultimately it will take some concrete evidence that inflation is behind us and a "Fed Pivot" is here to assault a fresh attack on $2000. The market then must punch through resistance levels at $2025 to make a run for all-time highs. We will likely need some substantial breakdown in economic data for that to happen.

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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.