Precious Metals caught fire this week after several events set off another “this is it moment.” Despite Fed officials suggesting that interest rates should stay higher for longer, economic cracks are already forming. The labor department shows signs of strain after a miss in payroll data and rising initial claims. If we continue to see this trend, the Federal Reserve will have no choice but to bite the bullet and cut interest rates sooner than the September meeting. Studies dating back to 1990 have indicated that gold futures rose 6% on average within 30 days of the first interest rate cut after a hiking cycle.
Meanwhile, China continues to show a two-track recovery. Chinese retail sales grew by 2.3% in April, the slowest pace in two years, meaning the consumer is struggling, while Industrial production rose faster than expected. China remains the number one consumer of Copper, and with 54% of Silver demand coming from industrial sources, we are seeing another perfect storm take place. The increased demand for Copper comes with increased electric power use because the green energy revolution, rising demand for electric vehicles, and advancements in A.I. have all strained the out-of-date electrical grid. The combination pushes demand for Copper, Silver, and other metallic metals higher for the first time in a decade. That comes at a time when increased regulation makes it harder to bring on additional supply of Copper and Silver.
Daily Copper Chart
Monthly Silver Chart
Example Silver Options Strategy
We firmly believe that a “Commodities Supercycle” is underway, and we are constructing long-dated call spreads in the Silver market for our clients. For example purposes, one could purchase the August 2024 Silver futures $35.00 call option while selling an August 2024 Silver futures $39.50 call against it. The plan will create a calculated risk Bull Call spread and costs $1,500 plus any commissions and fees, while your maximum gain would be $22,500, less your initial cost, if silver futures close above $39.50/oz at expiration on July 25, 2024. We believe this strategy achieves a low-risk high reward profile.