Gold/Silver: It's all about to come unhinged

Posted: May 20, 2022, 1:05 p.m.

It was an eventful week in precious metals with what seemingly solidified a new hard floor in gold at $1785/oz. I am somewhat skeptical that I can say the same thing about silver, which has been trading more like a risk asset rather than a safe haven or an inflation hedge. U.S. Equities are on track for seven straight weeks of losses, and with investors conditioned to believe that the Fed will come to the rescue, they will be left disappointed until well into the back half of the year. Comments from Fed Chairman Jerome Powell on multiple occasions solidify this stance when he previously said, "the process of getting inflation down to 2% will also include some pain..." and just this week, he told the Wall Street Journal that "no one should doubt" the Federal Reserve's resolve to quell U.S. inflation. "What we need to see is inflation coming down in a clear and convincing way, and we are going to keep pushing until we see that."

The hawkishness coming out of the Fed should alert investors and combine that with weaker earnings, forward guidance, and economic data, which are cementing a hard landing and a global recession. Earlier today, we saw consumer confidence in the U.K. fall to a five-decade low. Households are seeing food, energy, and borrowing costs rise while savings rates and discretionary income fall near all-time lows. Additionally, an alarming article released Thursday by the Wall Street Journal stated that "More subprime borrowers are missing loan payments" and that "consumers with low credit scores are falling behind on payments for car loans, personal loans, and credit cards..." While I do not generally paint the gloom and doom type of article, it appears that is the direction we are going.

Looking at the latest CFTC, non-commercial net long positioning traders are increasing their gross longs in Nasdaq and S&P 500 positions. At what point will they stop adding and start reducing and tap out? My best guess is when the broad-based expansion of the equity sell-off hits all markets, and there is blood in the streets. Remember, in a panic; everything gets sold. I believe owning assets such as gold, treasuries, U.S. dollars, and specific commodities is one of the best ways to position yourself while reducing your exposures to risk assets, cryptocurrencies, and leveraged longs. To learn more, we completed a new educational guide that answers all your questions on how to transfer your current investing skills into trading "real assets," such as the 10 oz Gold futures contract. You can request yours here: Trade Metals, Transition your Experience Book.

Daily Copper Chart



Daily Nasdaq/Gold ratio chart


What I am watching this week

Keep an eye on the U.S. Dollar/ Gold correlation that has shifted from a month ago at -0.93% to a two-week correlation of -0.46%. If other countries pivot dovish due to the global recession, you will see that act as a tailwind to the U.S. Dollar and similarly support gold. Use any significant bear market bounce to reduce net long exposure or add protective puts in risk assets. The contagion might be in the beginning stages when you see retail companies sink in earnings, such as Walmart -11%, Amazon -14%, and Target -25%.  To help you with technical analysis and identifying trends, 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.

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