The bears continued their assault on Precious Metals this week, with Gold extending its decline since May 10th by $90 and Silver down $2.50/oz. The shift from bullish to bearish sentiment happened as investors pushed out their expectations for a Fed pivot, along with the first scheduled interest rate cut. The combination of weaker economic data abroad (ex., Chinese Industrial Production actual 5.6% vs. 10.9% expected) weighs in on foreign currencies giving a tailwind boost to the U.S. Dollar. Most fluctuations in commodities (negative or positive) occur from changes in the U.S. Dollar's value because most are imported or exported abroad. For those unaware, the U.S. Dollar index measures the value of U.S. Dollar's relative to a basket of foreign currencies and was established by the U.S. Federal Reserve in 1973 after the dissolution of the Bretton Woods Agreement.
Daily U.S. Dollar Chart
Daily Gold Chart
The technical backdrop for Gold is damaging as the "traders" that chased the market in early May near the all-time highs frantically liquidated their positions on Tuesday when Gold breached $2000/oz. Those same traders rotated into technology stocks pushing the Nasdaq to the highest level since last August. Monitoring these flows and cross-currents is vital because once U.S. economic data begins to slip, those same traders will jump back into Gold, pushing it to new all-time highs. The consumer supports much of the U.S. economic activity through the use of credit card debt, which has also cycled to new all-time highs. It is a matter of time before the recession hits and yields plunge. In the short-term, the current U.S. debt ceiling talks are suspended as of this writing (Friday afternoon); therefore, while I describe the chart pattern initially as "damaging," it offers short-term and long-term opportunity if a default was to happen.
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Daily Silver Chart
The chart pattern in Silver has been strikingly similar to that of Gold since the beginning of May. We are approaching that opportunity for those patient enough to wait for a correction to re-enter the market, while our previous call to use the eight-day exponential moving average (EMA) for risk management proved timely. The near-term bearish forces drove prices nearly 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 the 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.
Having the flexibility to enter and exit the market quickly makes it essential for Precious Metals investors to have a futures trading account alongside their core Physical Precious Metals holdings. If you are interested in speculating on the rise and fall of the price of Precious Metals on a shorter-term basis, such as two weeks or two months, or If you have never traded futures or commodities, I just completed a new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. You can request yours here: Trade Metals, Transition your Experience Book.
