Gold/Silver -How to trade this bloodbath
The broad-based selling continued in the commodity markets this week, where "inflation worries" have shifted to "recession fears." Looking back through several trading journals of mine, I can tell you that volatility operates at its highest in a deflationary/recession-type environment. Financial conditions will continue to deteriorate until the Fed pauses/pivots dovish, with corporate profits, growth, and liquidity all strained simultaneously. The spillover effect will cause cryptocurrency, real estate, and tech companies to accelerate layoffs well into the fall.
Daily chart of 10-year Treasury yields
Cross-asset class correlations show a repetitive pattern in the markets where inflation expectations elevate when Crude Oil prices rise, causing yields to cycle higher, giving a boost to the Dollar, which puts slight pressure on the Gold market. This cycle was broken abruptly on Friday as traders recognized that if a recession comes to fruition, the most likely outcome will result in declining Treasury yields, giving way for liquidation in Gold with panic buying in the treasury market to lock in higher rates.
Daily Gold Chart
Copper, Platinum, and Silver faced a beatdown on Friday from multiple directions. General Motors reported that nearly 100,000 vehicles sat uncompleted due to supply chain issues. At the same time, ISM Manufacturing data in the U.S showed that new orders had contracted to a two-year low. Remember, industrial fabrication makes up the bulk of demand for these three metals. We expect them to make a substantial recovery once the Fed declares victory on inflation and pivots to stimulating the economy. Therefore, positioning in these metals needs to be considered long-term investments in extreme washouts like what we are seeing now. Any new positioning should be in December 2022 or into 2023 on futures contract purchases. If you have never traded Silver futures, we completed a new educational guide that answers your questions on how to transfer your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. Additionally, you will receive a free two-week trial to our flagship report, "The Morning Express," giving you critical levels of support in resistance in the Gold and Silver. You can request yours here: Trade Metals, Transition your Experience Book.
We remain bearish, taking tactical shorts on U.S equities on any significant bounce targeting the Nasdaq and Russell 2000. The leveraged stocks that make up these indices are most at risk during a recession. We also maintain our bearish stance on crypto and traditional currencies such as the British Pound, Euro, and Yen. We are also bearish and targeting economically sensitive commodities such as Cocoa, Corn, and Soybeans on bounces. We maintain a bullish stance on China as it continues to stimulate its economy. Crude Oil should remain firm in the front months while weakening over time as we get deeper into the recession. Therefore, we will look at leveraged option bets to play a further correction. To help you identify different technical analysis formations, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold but can easily apply to Silver." The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Gold.
By Phillip Streible
Contributing to kitco.com