It was a choppy week in the Precious Metals after ten straight days of consolidation in the Gold market. What seemingly looked like a “breakout” on Thursday, after an uptick in initial claims, proved to be a “false breakout” when the People’s Bank of China (PBOC) announced the conclusion of eighteen straight months of Gold purchases for its reserve. For reference, China began its Gold purchases in November 2022 when futures were in the $1650-$1700/oz range. How important are Chinese Gold purchases to the sustainability of the bull market? I believe that it is a critical component of the price action. However, we have danced this dance before with China.
Reflecting on my time at Lind-Waldock in 2002, I recall China’s active role as a purchaser of Soybeans. Their relentless demand and purchases drove the price of Soybeans from $6 a bushel to $8 a bushel in a short span. China perceived this surge as a ‘tax’ and decided to employ a strategic move. They would cancel Soybean purchases, causing futures to plummet ‘limit down’ overnight, only to quietly increase purchases in the following trading session. Whatever their strategy maybe this time, we must remain vigilant about Chinese Gold purchases and their potential impact on the market.
Daily Gold Chart
After Friday’s better-than-expected Non-Farm Payroll Data (272k vs 182k exp.), futures are trading back on their heels of critical support. If futures close below $2340/oz, futures could find themselves in “liquidation mode” until the next bullish catalyst. Traders will need to see a move back above $2415 to spark another wave of buying. Next week, we will see the June FOMC Meeting conclude where there is little expectation for the Fed to adjust the policy rate. Traders will remain focused on the language where we expect the Fed to describe the progress on inflation as slowed rather than stalled.
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Daily Silver Chart
We firmly believe that a “Commodities Supercycle” is underway, and we are constructing long-dated call spreads in the Silver market for our clients. For example, one could purchase the September 2024 Silver Futures $35.00 call option while selling a September 2024 Silver Futures $40.00 call against it. The plan will create a calculated risk Bull Call spread and costs $1,750 plus any commissions and fees, while your maximum gain would be $25,000, less your initial cost. If silver futures close above $40.00/oz at expiration on August 27, 2024. We believe this strategy achieves a low-risk, high-reward profile. If you would like to be up to date on the developments and strategies we are recommending to our clients, please register for a Free Guide by clicking Trade Metals, Transition your Experience Book.
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