Another great week to be long this "Commodities Super-Cycle" as multiple commodities broke out to new contract highs. If you have been reading our daily note called the "Morning Express," you would already know that the rising commodity prices front runs the inflation data making it essential to keep adding incrementally on corrections to commodities. My recommendation would be to focus mainly on energies and industrial metals.
The explosive CPI data released Wednesday marked the largest monthly gain since 1981 on the heels of the rapid reopening. The report's focus showed that Airlines, Auto, and Lodging saw the biggest price increases along with constrained supplies, explosive demand aligned with aggressive monetary and fiscal policy. You are probably asking yourself by now, Why am I getting all Macro on you? Because the chart below is going to be the one you need on your radar. To further help you, we created a free "Gold Trends Macro Book," which has been updated with silver slides. This monthly updated booklet will provide you with all the quantitative analyses of the precious metal's markets. You can request yours here: Free Gold Trends Macro Book.
Weekly Gold/Silver Ratio
If you can get the Macro backdrop correct, you can get the dollar right, get treasury yields right, and spillover effect into the things you care about, i.e., Gold and Silver. With faster economic growth and accelerating inflation, we should see the yield curve ramp-up to new cycle highs. That is where the industrial demand for Silver kicks into high gear, and Gold tries to hang on for dear life. For the past two decades that I have been trading, writing, and covering the precious metals markets, we have always seen Silver act as the victim of Gold price movements and due to the nature of leveraged short-sellers. Well, this time around, looking at CFTC non-commercial net long positioning, we can identify that Gold has roughly half as many net longs as its one-year average while Silver is quietly is building week over week. Rising yields will lead to continued "trimming" of Gold longs; however, the price of Gold may not see the sizable correction one would expect and actually will "drift" higher due to the rising demand for Silver as an asset. While Gold is just a currency that sits in a vault collecting zero interest, Silver, on the other hand, acts as an inflation hedge and industrial metal. In preparation for the next "Breakout" in Silver, we are constructing Bull Call Spreads using the futures contract for exit timing flexibility along with manageable leverage. 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 Gold.
Good luck and good trading,
Chief Market Strategist
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