Gold/silver - a breakout and a "black gold" recommendation
What an eventful week for myself and in the markets; first, I got engaged to the beautiful granddaughter of one of the largest, most successful traders of all time. Second, we saw some of the missing ingredients come into the mix to help get the gold market back on track to the upside, while silver was the shining star this week, outperforming gold and sending the gold/silver ratio crashing four handles. I remain hesitant on getting all bulled up on gold while maintaining more optimism on crude oil and silver instead for the first half of 2021. Remember, you get engaged to your significant other, not the markets. The last thing we want to do is marry an underperforming commodity that wipes out your capital like we saw gold traders do from 2013 until 2015.
Gold/Silver Ratio Chart
So what changed with gold this week? First, the technical landscape had started to come around with gold holding support at our major three-star support from 1825-1820/oz. If gold had broken this level, a test below 1800/oz would most likely have been in the cards. If you start connecting the dots from the washout low 1767.20 up to 1879.8 and then back down to 1820 and now up to 1902, you will see that we are in a rising channel. The other major development was during Fed Chairman Jerome Powell's press conference, which stressed that the Central Bank would continue its asset purchases until "the job is well and truly done." Additionally, gold decided to revert to being negatively correlated to the dollar in the past two weeks, and that correlation is sitting at -0.88. If you would like to be up to date on the developments of our strategies in the futures and commodities markets, please register for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up.
Daily Gold Chart
My favorite metal, silver, is becoming unhinged from gold and trying to play "catch up" to the other base/industrial metals. The way to monitor this is through the gold/silver ratio, which went into "crash mode" this week. We continue to hold longer-dated call spreads in silver to preposition in the market and avoid having to chase it while not having a fear of missing out on the inevitable rally.
Daily Silver Chart
Something I find interesting is that the brokers, hedge funds, and institutional desks I communicate with daily are taking more of a bullish stance on silver/silver miners while having more of a neutral view on gold and a negative bias on gold miners. Why are they still neutral on gold and negative on gold miners? They believe that gold miner valuations are lower because the underlying input costs are rising, i.e., energy costs, interest rates, and profitability calculations are using a gold price we will not see till the back half of 2021. The rising energy costs brought my attention to the oil market that continues to power higher and should be one of the best-performing commodities in the first half of 2021. Last week I outlined a trading example of approaching the crude oil market that I will repost below.
Daily Crude Oil Chart
I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold," which you should print out. 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.
Daily 10-Year Note Chart
Since I do not have a high conviction in gold, we are positioned in silver already, therefore, we have been more focused on "Black-Gold," known as crude oil. Crude oil has set itself up as another "reopening trade" with a strong underlying bid under the market. Last Wednesday, we saw a 1/2% decline in U.S. equities, a 15 million barrel build in the EIA inventory data, and crude oil futures were still able to manage out a positive gain on the day. Since then, we have seen a clear breakout with $50/barrel in sight for the February contract. We recommend our $25,000 account clients purchase One February mini crude oil 500 barrel contract at $45.25/bl with a stop at $42/bl targeting $52.50/bl. Doing so will risk $1625 while seeking to return $3625. If you would like to be up to date on the developments and strategies we are deploying, please register for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trail Sign up.
Chief Market Strategist
Blue Line Futures LLC
141 W. Jackson #2845
Chicago IL 60604
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.