It was a constructive week for commodities as all sectors we track and trade at Blue Line Futures ticked higher. Precious Metals were slow to start as the U.S. Dollar and Two-year Treasury yields put up a strong defense keeping Gold relatively contained. Then softer ISM data (a leading economic indicator) put the Fed back on the defensive, questioning whether another rate hike is necessary. After Gold and Silver stayed within the support and resistance levels, jobless claims were released on Thursday at 261k, pushing to a 19-month cycle high, lowering the probability of a rate hike on Wednesday to a 25% chance.
CME FedWatch Tool
Daily Gold Chart
There are two sides to every story, and this week, Gold, on the one hand, held critical support at $1950, while on the other hand, failed to punch through $2000. It "feels like a sense of "do or die" with the volatility-driven events scheduled this week. While a "Fed pause" will undoubtedly fuel a rally, another rate hike could pull the rug out from under the market. If a rate hike occurs, Gold will challenge $1950 again, then reverse as swap dealers focus on the next Fed rate cut at the back end of the year.
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Daily Silver Chart
Silver's recovery this week and "breakout" above $24.18 was impressive. The 50% retracement level on the daily chart near $23 proved an excellent opportunity to add to core positions using the December 1000 oz Silver contract. The next challenge Silver will face on the charts is climbing the May 11th selloff, where futures fell $1.30 in a single trading session. That day PPI (Producer Price Index) unexpectedly rose, and the U.K. raised interest rates to 4.50%. As outlined above, we will face economic data releases similar to May 11th this week. If you are heavily overweight in Silver, using the short-dated options markets may be advantageous to provide protection. True Silver Bulls will challenge the need for safety, and my rebuttal is that you probably have car insurance, you don't crash your car every day, but in the unlikely event it happens, you have the protection you need.
While a price setback would be temporary, our long-term thesis remains that tightness in the physical markets, a decline in mining supply, and solar and EV demand should offset any potential for prices to decline further. Over the next 18-24 months, we expect Copper to make new all-time highs and Silver to break $35/oz.
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