Gold/silver: finding value in the gold price volatility

February 5, 2021

New York (Feb 5)  This week started with a Bang! Congratulations to those of you that I am working closely with and could capitalize on reducing your silver exposure when It popped $3+ on the open Monday. We saw implied volatility premiums spike allowing us to sell our options to those willing to overpay for them. If you know me I like to buy commodities when no one wants them and sell commodities when everyone wants them. It sounds easy but the reality is you have to form a plan, focus on the numbers and check your feelings at the door.

Over the past few months, I have strived to bring you different ideas beyond the "long-only gold and silver" thesis. Back in December, I wrote an article called "The Black-Gold Alternative" that gave you a recommendation for our $25,000 account clients to purchase One February mini crude oil 500 barrel contract at $45.25/bl with a stop at $42/bl targeting $52.50/bl. Doing so risked $1625 while seeking to return $3625. This trade worked out perfectly and crude oil should still perform as the number of covid cases declines, while vaccination increases leaving leisure and travel some of the best areas for growth.

Since we are focused on Gold we have a new edition of our free "Gold Trends Macro Book," 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.

Shifting gears into gold, I have been bearish on gold since the cycle high and "All-Time-High" in August in conjunction with the cycle low in Treasury yields. The uninformed "long-only" gold bugs have been left scratching their heads, pounding sand shouting "Inflation!" Look at the CRB index up 24% since November and multiple commodities are pressing all-time highs. Inflation is going to be felt in your grocery bill and gasoline bill when your filling up your car. The real headwind for gold has been the 10-year yield punching new highs while the 2-year yield is stalling. This is called a "steepening yield curve" and gold HATES a steepening yield curve.

What sparked my renewed interest in gold is the "17 handle" (meaning the price dropped below $1800/oz) and the rapid acceleration of the 10-year yields. If the Fed loses control of the long end of the yield curve it could tank the housing market and the recovery. Therefore, they may institute a "yield curve control" and suddenly gold would be restored as a value play. The first half of 2021 gold will have a headwind but it is when the deceleration of growth happens in Q3 and Q4 where gold, treasuries, and utilities could catch a value bid.

Our strategy on gold

We suggested that our clients consider using TWO Micro 10 oz December Gold contracts per $25,000 and buying ONE at 1800 and ONE at 1755, with a stop at 1690. Doing such would ideally risk $1,750. We would look to a gold target of 1975/oz, which would allow for a profit of $4,175.


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