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Gold/Silver: The two levels that silver traders are watching

Commentaries & Views

It was an impressive week for commodities across the board, with everything from Precious Metals and Energies to Agricultural markets grabbing headlines. During the Pro-Farmer Crop tour, excessive heat across the Midwest triggered volatility as farmers asked themselves, "How much heat can this crop handle?" You may ask yourself why metals traders care about crop conditions or energy prices.

The answer is simple: food and energy comprise the two main components of inflation. As prices rise, inflation rises, and the Federal Reserve steps up its fight against inflation, leaving interest rates "higher for longer." That impacts the trajectory of Gold prices and is the main reason prices have failed to take out recent highs.

On the other hand, Copper, Platinum, and Silver continue to monitor clues from China regarding additional stimulus measures that can potentially boost demand for the metals. 

Daily Silver Chart


Silver futures rallied sharply this week, tacking 6.7% coming into Friday's Jackson Hole symposium. While we welcome the gains, it's hard not to pay attention to the seemingly rangebound trading affair we find ourselves in. Prices remain trapped between $22 on the downside and $26 on the upside. Breakout traders will use any close above $24.75 to establish new long positions, while a "breakdown" below $23.39 will spark additional liquidation and fresh "naked shorts" in the market.

We will want to re-establish long positions on and correction below $23 while utilizing call options to play an upside explosion above $26. Remember, "every bull market starts with a short covering rally."

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Daily Gold Chart


Gold futures lack the upside momentum Silver and Platinum found this week, with new cycle highs in Treasury Yields and fresh contract highs in the U.S. Dollar being the two most significant headwinds. As a "zero-yielding asset," making its bull case is challenging, especially with debt instruments yielding 5% everywhere. The chart pattern suggests that futures must close above $1951 to achieve a bottom. It will take a move back above $1971 to switch the bearish trend back to a neutral trend. Breakout traders will consider a close above $1988 for establishing additional longs, while a close below $1926 will spark fresh liquidation. 

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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.