Gold/Silver/Wheat: The next short squeeze?

What is the next market to see a short squeeze? That is the question I have been asked most by clients this week. Shortages have been popping up everywhere within supply chains, especially where inventory remains low and bottlenecks in distribution occur. Multiple commodities such as Oats, Cotton, Crude Oil, and Gasoline have rallied double-digit percentage gains this month. I know you are thinking, when is it my time in Gold and Silver?

Gold attempted another breakout on Friday and traded back below the $1815 pivot by the end of the session. The volatility results from the push and pull of rising real yields (acting as a headwind), while the Dollar's correction acts as a tailwind. If the rise in yields can pause while the Dollar drifts lower and growth slows, you can have a set up for a sustainable rally. Until then, the funds will remain active sellers on rallies just as they have been active buyers on corrections in US Equities. 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.

Daily Gold Chart

Silver has a much better chance of a breakout than Gold based on two key observations. The simplest would be the Gold/Silver ratio breakdown since September 29th at 80:1 down to 73.5 today. That shows momentum is building under Silver over Gold, and second is the latest CFTC non-commercial net long positioning. Currently, Silver has a net long position of 16,190 contracts with a one-year average of 40,866 contracts net long. The three-year max position is 80,646, leaving plenty of participants to join in on any possible breakout, therefore, creating a "Squeeze."

Daily Silver Chart

However back to the short-squeeze question addressed initially, I firmly believe that an active one remains in the Wheat market. World Wheat stockpiles continue to decline while global demand accelerates. The latest CFTC non-commercial positioning shows a net short of -11,349 contracts meaning traders could frantically purchase contracts on any supply disruption. Two quick charts to look at are the Spring Wheat and Winter Wheat.

Daily Spring Wheat

Daily Winter Wheat

While we monitor developments in Gold and Silver, we will be constructing strategies in Wheat for the next potential leg higher. Remember our goal is to put beliefs and narratives aside and position where we see the best opportunities. If you have never traded futures or commodities, I just 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.


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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.

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