This week was a bit of a snoozer in precious metals, with Gold and Silver up a half a percent. The market volatility has broadly been on the decline since Monday, and ever since last Wednesday's Federal Reserve policy meeting, each asset class raced to price in higher inflation expectations for 2021 and a speedier timeline to two rate hikes. Committee members this week confirmed prospects for two and even three rate hikes by the end of 2023 but were cautious in signaling a taper without data for another three to four months.
The S&P has camped out at its record high while the U.S. Dollar Index has settled in, retreating from last week's high by 0.7%. The yield of the 10-year note has rebounded from a four-month low to linger just below 1.5%, and the long end of the Treasury curve roared higher and priced in peak inflation after the Fed caved to critics by quickly raising those inflation expectations. Gold is finding some footing at 1771, a critical technical level, and this leaves us with the opportunity to continue to add to our strategies. If you missed the write-ups, I have outlined them again below. To further help you understand the quantitative analyses of the precious metals markets, we created a free "Gold Trends Macro Book," updated with silver slides. You can request yours here: Free Gold Trends Macro Book.
March Silver Strategy
With the firm belief that Silver will continue to trend higher over the next nine months and recommend our clients with as little 5-10k in risk capital to position themselves in a calculated risk "call spread" with a 1:3 risk to reward scenario. We are constructing the spread by purchasing the March 2022 Silver $29 call while simultaneously selling the March 2022 Silver $31 call. Since Silver futures are 5,000-ounce contracts, every one-cent move represents $50, and every dollar move represents $5,000. Since this spread is two dollars wide, its maximum value would be $10,000, and the current cost of the spread is 50 cents or $2,500 plus any commission and fees. That also represents your maximum risk. The maximum gain would occur with the price of March Silver Futures closing above $31/oz at expiration on February 23, 2022. Maximum gain is $10,000 minus $2,500 (cost) minus your commission and fees leaving you around $7,425 (give or take your brokerage). The spread anytime the futures are trading can be liquidated before the expiration; however, it may not capture the entire max profit due to the time remaining.
December Gold strategy
If you have been working with us and are looking to position in Gold for the long run, we suggested that our clients consider using FOUR Micro 10 oz December Gold contracts per $25,000 and buying TWO at 1775 and TWO at 1685, with a stop at 1640. Doing such would ideally risk $3,600. We would look to a gold target of 2100/oz, which would allow for a profit of $14,800. If you would like to learn more about the strategies we are implementing or learn more about technical analysis, we created a guide to provide you with all the 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 Precious Metals.
Good luck and good trading,
Chief Market Strategist
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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.