Rarely do I pick bottoms, and if one of our clients calls in and asks, I generally tell them that I am a commodities broker, not a proctologist. The problem with picking bottoms and tops in the markets is that often you will be wrong 9 out of 10 times. Sure, the one time you are correct, you get bragging rights at the next cocktail party, but unless you went big on the trade, you will probably lose in the long run. The best strategy for picking bottoms or counter-trend trading is to utilize some calculated risk strategy, such as a call option or bull call spread. Often, I shy away from using straight futures contracts with a stop loss because emotions may get the best of me, and the urge to cancel the stop may occur.
Precious Metals reversed sharply on Thursday and Friday, led by the results of the ECB meeting where policymakers increased interest rates for the 10th consecutive time. They cited rising inflation forecasts stretching out into 2024 while, under the same breath, indicating that economic growth may contract. That particular environment of rising inflation and declining growth, also known as “Stagflation” historically, is one of the best circumstances for higher Gold prices. Coinciding with that economic environment is the bullish five-year seasonal pattern for Gold, where prices tend to bottom in late September and rally through November. Traders will then rotate out of Precious Metals and into Equities, positioning for a Santa Claus rally, which leaves a brief window for Gold bulls to reload for the second wave (see chart posted below).
5-Year Gold Seasonal Pattern
Daily Silver Chart
Silver futures brushed off the significant pressure felt over the past two weeks by rejecting sub-$23 prices. If you follow my daily “Metals Minute” video posted to our website, you will note that I have been adamant that Silver remains in a cycle where sub-$23 is “too low” while prices above $25 are “too high.” Many will argue that Silver prices should be much higher, and I agree; however, given the weakness in industrial demand and a deflationary environment in China, it is not the right time. Remember, 54% of Silver demand is industrial demand, so stay patient, and good things will come in the future. If we have some “short covering squeeze,” traders working closely with me have added bull call spreads into March 2024. If you want to learn more about longer-dated calculated risk strategies in the Silver market, don’t hesitate to contact info@bluelinefutures.com.
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Daily Gold Chart
Gold futures sharply reversed this week despite higher Treasury Yields and a stronger U.S. Dollar. The technical perspective shows momentum studies rising from oversold territory, giving the edge to the bulls. Overhead resistance sits at our trend reversal point at $1967, where any close above that level will shift the bears back more of a “neutral stance.” 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, check out this 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.