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Overnight, Precious Metals are getting slammed after yesterday’s wild trading session.
If you saw yesterday’s Metals Minute, I discussed a valuable trading lesson where if the market has two separate “extremely volatile” events, such as CPI and the FOMC announcement, on the same day, if you see the average true range met in your direction on the first data point and are uncertain to the outcome on the second. It is often prudent to reduce or risk manage the second.
Within an hour of the CPI release, Gold futures rallied $30/oz, while Silver futures jumped $1, leaving short-term traders to question whether the risk versus the reward makes sense to hold into a “hawkish Jerome Powell.”
The Federal Reserve Policy Committee voted to keep rates steady, while forecasts now imply only one quarter-point cut by the end of 2024. Remember, in December, markets were forecasting six; by March, it was three, and now, just one.
Part of the challenge the Fed faces is the labor market’s strength, which helps keep the economy strong and, therefore, inflation high. That is why, beyond Central Bank buying and inflation, employment data such as initial claims, Jolts, wage growth, productivity, unemployment rate, and non-farm payrolls should be on every Gold trader’s radar.
It is essential to know what impacts the market you are trading. If you trade grains, you will monitor supply, demand, USDA reports, crop progress, planting intentions, U.S. and South American weather, the Dollar, and U.S./China relations.
If you trade Crude Oil, it’s OPEC production, U.S. Production, the strength of the U.S. economy, EIA, API, geopolitical tensions, Chinese demand, and inflation expectations. (Remember, Crude Oil is the best indicator of rising inflation).
Today, we will see more inflation data with PPI, Core PPI, and initial claims.
Technicals
Gold – Looking constructive for the bulls
The market needs to retrace the June 7th sell-off, which shifted the market on my proprietary trend discovery system from a “neutral to a bearish trend.” The override filter that negates the bearish signal is the lack of a close lower than the June 7th sell-off low. $2300 is the critical level of support. I may recommend to our clients to buy $2300-2250 put spreads for protection against long positions.
Stochastics are rising from oversold territory, DMI+ could cross above DMI- and the average true range is $38.
Silver – Maintains a bullish trend as long as it maintains a close above $29.14. If we close below, the trend neutralizer will hit and we will close below the 50 DMA. Stochastics have declined into oversold territory; the average true range is $1.14/oz.