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Gold/Silver: Is there enough juice to get Gold over $2000?

Commentaries & Views

The tides have turned this week for Precious Metals after a stunning collapse in CPI, followed by a series of weaker economic data points. Fed fund futures are questioning the Federal Reserve's hard stance. Currently, the latest CME FedWatch tool indicates a 2% chance for the first interest rate cut in January, followed by a 35% chance in March and a 65% chance in May. The modest uptick in initial claims data helped fuel the recovery in Gold, and bargain-hunters aggressively stepped into the Silver market. The Gold/Silver ratio quickly retreated from 87:1 back down to 83:1, leaving us to wonder if this rally is for real.

Daily Gold Chart

After pressing the 50 DMA and trading down to our pocket support ($1950-$1938), Gold futures were able to stage a strong recovery, slicing through the 200 DMA. We want to carefully monitor key levels of resistance at $2000 and $2020. Any breach above should trigger the next wave of short covering followed by fresh buying. Remember that every bull market starts with a short-covering rally. Momentum studies are turning higher, with stochastics rising from oversold territory, followed by the MACD histogram, which is also beginning to rise. We see value in adding short-term options above the breakout point of $2020 and adding micro futures on any weakness to our pocket support. The technicals leave you with a clear line in the sand below $1938 for risk management purposes. 

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Daily Silver Chart

Silver delivered a perfect head fake this week, and congratulations to those of you who could grab contracts below $22. We have often expressed on Kitco that we find value in owning Silver for the long haul below $22 and expect that once an economic recovery takes place in China, futures will again test $28-30. Given the sharp rise in prices this week, we recommend not chasing this rally and waiting for prices to trade back into the low $23s before gaining exposure. You should keep an eye on two levels of pocket support from $23 down to $22.86, which corresponds with the 50 DMA. Below that is our trend neutralizer at $22.13, where Silver will revert from a bullish trend to a neutral one. 

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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.