It was a "risk-on" week for U.S. Equities while commodities remain aggressively oversold. A mental shift is occurring, and investors have been rotating out of inflation (commodities) and into recessionary deflation-type assets. That push drove the U.S. Dollar back to 20-year highs and the Euro to 20-year lows. Year-to-date, Copper, has been the worst-performing metal, down 20%, followed by Silver, down 18%, and while they may be down, they are not out for the count. This week China announced that it is considering a $220 Billion infrastructure bill that would help support the world's second-largest economy, and that's the same playbook I believe the U.S. will use once the recession is here.
Friday's latest June employment data created 372,000 new jobs versus 265,000 expected. The reaffirmed strength in the labor market cements another 75 bps rate hike at the July 27th FOMC meeting. After that meeting, we should see a change in momentum where aggressive interest rate hikes begin to fall, and more consistent smaller hikes remain. The overtightening the Fed will conduct in the back half of the year will ultimately lead to rate cuts in 2023, with 75 bps of cuts already expected.
Daily Copper Chart
Daily Silver Chart
While precious metals have seen their largest weekly outflow in over a year, one must remember that the bigger the outflow, the bigger the inflow when the cycle turns. We expect Copper and Silver to make substantial recoveries once the Fed declares victory on inflation and pivots to stimulating the economy. Therefore, positioning in these metals needs to be considered long-term investments in extreme washouts like what we are seeing now. Any new positioning should be in December 2022 or into 2023 on futures contract purchases.
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Daily Gold Chart
Our Strategy
We remain bearish, taking tactical shorts on U.S equities on any significant bounce targeting the Nasdaq and Russell 2000. The leveraged stocks that make up these indices are most at risk during a recession. We also maintain our bearish stance on crypto and traditional currencies such as the British Pound, Euro, and Yen. We carry a bullish outlook on China as it continues to stimulate its economy, which will have a spillover effect on Copper and Silver. Crude Oil should remain firm in the front months while weakening over time as we get deeper into the recession. Therefore, we will look at leveraged option bets to play a further correction. To help you identify different technical analysis formations, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold but can easily apply to Silver." The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Gold.
