Inside Intel on Silver & Gold

Hey There Income Hunters,

The precious metals cleared their first hurdle toward making new highs yesterday, rallying nicely from the low end of the short-term trading range on higher volume.

Now they are consolidating just below the 200-day moving average, the second hurdle prior to taking out the June intermediate high.

The graph below shows the SPDR Gold Trust ETF (Ticker: GLD), the most liquid gold ETF …

Notice the 2.5% price rise in GLD toward the end of July, which tested the 50 and 200 DMA before retreating …

While I am extremely optimistic about the longer-term trend in precious metals and miners, there is still some wood to chop to clear the hurdles to new highs …

Today I’ll show you the obstacles ahead of us in the short run and the signposts that will reveal the timing for loading up for a Q4 explosion to the upside …

Suppression of Metals Prices Continues

The London swap dealers will continue manipulating the silver and gold futures contracts until January 1, 2022, when the Basel III rules kick in there.

They gained an extension from the original date of July 1, 2021, which is when US and Euro banks began being penalized for shorting paper silver and gold futures. 

Here is the inside info on the swap dealer positions …

Gold Commitments of Traders (COT) – All Futures Combined Positions

Notice above the sizable -240k short position in gold futures.

The large commercial banks are incentivized to drive prices lower in the Comex paper markets and profit from unwinding their short positions.

Another reason for caution is the extreme valuations in the equity markets, although I am less concerned about them for two reasons:

      1. I am not overly worried about the Delta variant slowing the economy. London’s Delta variant timeline is ahead of the US, and they are seeing fewer cases of death and hospitalizations already.
      2. I think China’s regulatory crackdown will dissipate in the weeks ahead and foreign investment will begin to flow back into the country/

This will reduce a deflationary impact on the global economy just as the reopening lift builds momentum …

How to Play Gold From Here

I continue to hold long positions in junior miners.

Canagold (CRCUF) and Pan Global Resources (PGNRF) are two of my favorites that I continue to build positions on.

Check them out, they are great long-term holds at undervalued prices. You can make a multiple on your investment over the next 2-3 yearsThey provide tremendous leverage as the precious metal’s prices remain elevated.

To play a shorter-term trade in GLD consider a 1×2 call spread. A long 172 call/ short two 176 call position can be done at almost zero cost and allows you to hold the position and roll it forward if the rally takes longer to develop …

GOLD One-Year Graph

 

The fundamentals, including the Fed money printing and the increasing US debt burden, provide such a powerful tailwind for gold as an alternative currency to the dollar.

The short-term technicals still provide challenges for the next couple of months, although they can be overcome. Watch for a break above the 200-day moving average on higher volume to jump on out-of-money (OTM) calls or call spreads.

You also want to get aggressive on a drop to $1,750 to put on a bullish option strategy like selling puts or buying OTM calls or at-the-money call spreads.

Bring It Home

The stock market has paused near all-time highs and an external shock or relapse on the Delta variant could cause a short-term correction.You have to be ready to hedge if technicals break down.

At the same time, you can also look at the damage the China tech wreck caused and the bad news on the pandemic and consider that the market has very strong underlying strength.

There are plenty of strong price pressures coming, which I will touch on later this week, and  most likely strong job numbers are coming in the days ahead.

So, stay long metals and miners, energy and industrials while you also use sell stops to limit your losses … Consider hedging tools like the Cboe Volatility Index (Ticker: VIX) and put spreads on the S&P 500 when technicals break down, i.e. the SPDR S&P 500 ETF Trust (Ticker: SPY) drops below 436 on high volume.

Have a great day and as always …

Live and Trade With Passion My Friends,

Griff

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