Gold/Silver: Reduce exposure, raise stops, and buy the dip

Posted: March 24, 2023, 1:07 p.m.

Volatility, Systematic risks, and contagion fears continue to dominate headlines. Yet again, it was another historic week in the markets as Gold and Silver continued to rise with turmoil in the banking sector and the Fed trying to backstop the market by inflating its balance sheet by $400 Billion in the past two weeks. Their fight against inflation remains on hold while attention shifts to assisting troubled banks, with Deutsche Bank being the most recent. The problem banks are having is the rising cost of insuring against defaults, resulting in increased borrowing costs. Meanwhile, the capital flees into safe-haven vehicles such as the U.S. Dollar, Bitcoin, Treasuries, Gold, and Silver, dramatically reducing the level of deposits. 

Daily Silver Chart 

silver chart

The technical backdrop shows Silver has continued to achieve new swing highs but is trading into the thick of the February 2 reversal with major three-star resistance at 23.81-23.85. The first level of support is just below the 50 DMA at $22.43 and the 200 DMA at $21.24. We suggest using that level for "stop-loss" protection for clients currently long Silver. Looking at the stochastics, they have pushed into "over-bought" territory indicating that the current bull market is alive and well. The technical chart pattern suggests that Silver is amid a "Bull flag pattern" and could extend back to the $23-$25 consolidation range, as we saw from December through February.

Daily Gold Chart

Gold Chart

The technical backdrop in Gold shows a crucial double bottom at $1811/oz, and the market is well above the 200 DMA at $1787/oz. Stochastics are rising into overbought territory, and DMI+ is crossing back over DMI- indicating a healthy mature bull market. A critical level we are watching is the overnight low from the FOMC downward spike to 1982.3, now the first key support. A break below 1967.1-1975.2 will begin signaling a near-term failure. Therefore, we would be only cautiously Bullish and reevaluating upon such a move. 

Our Strategy

The near-term macroeconomic backdrop remains on edge, while the long-term outlook should entail a series of rate cuts into the fourth quarter of 2023. We recommend that clients trim exposure in the Gold market as it has risen over $200/oz in two weeks. 

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