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It was just seventeen days ago (February 1) when Gold went on a two-day rally looking as though it was going to punch back through $2000/oz (Silver $25/oz), and if you were not already on board, you thought you missed it for good. Since then, Gold and other Precious Metals seem to have hit the "pain train" as economic data continues to support an aggressive Fed policy stance leading to a stronger U.S. Dollar and rising Treasury Yields. While the Fed may want to keep its hawkish narrative alive, the reality is that the wheels are already starting to fall off the economy, and no matter what cards they hold up their sleeves, they will ultimately have to pivot dovish to save face.
Even though the Fed aims to stay "apolitical" and is laser-focused on getting back down to a 2% inflation target, the probability of reaching that goal in this new global environment is nil. The heightened geopolitical tensions and unpredictable weather patterns leave basic commodity prices at elevated levels that are here to stay. Those rising input costs will ultimately lift the prices of all goods and services, and those costs will drive the consumer to take on more debt. The rising borrowing costs will spear the economy into a recession where political leaders will pressure the Fed into reversing policy action. That is why I believe getting on board assets like Gold and Silver on this decline makes sense to "dollar cost average" to try and take advantage of the recent declines.
Daily Silver Chart
Since their October 2022 lows, Gold and Silver saw substantial gains, which peaked in January. The short-term traders and investors involved in those markets then began liquidating those holdings and going back to chasing "profitless tech and cryptocurrencies." Now that those asset classes have once again peaked, a rotation back into hard assets will become underway in anticipation of a "Fed pivot." I anticipate this occurrence happening in the second quarter. To further help you develop a trading plan, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold that 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 Silver.
Daily Gold Cha
Strategy
By systematically purchasing regular intervals of the 10-ounce Gold contract or 1000-ounce Silver contract, you can layer in over time and preposition for the next rally. One example with a $25,000 account size would be to focus on the December 2023 10-ounce Gold contract and use a dollar-cost average approach by purchasing 10 ounces of Gold at 1850/oz, 10 oz at 1800, and 10 oz at 1750 with a year-end target of $2100/oz. If filled on all three contracts, your average price will be $1800/oz; therefore, every dollar move Gold makes on the three contracts will be $30 since you control 30 ounces. If the $2100/oz price objective is achieved by year-end, this will result in a gain of approximately $9,000 (30 oz times $300 rise). Traders should also consider proper risk management while using a dollar-cost averaging approach, such as a hard stop on three contracts at $1700. If that were to occur under this scenario, it would likely result in a loss of $3,000. If you have never traded futures or commodities or would like to learn more about taking delivery of Silver, I just completed a 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.
By Phillip Streible
Contributing to kitco.com
