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Gold/Silver: Precious Metals Capitulate Overnight, What Happened?

Blue Line Futures - Mon Dec 4, 2023
Blue Line Futures is a futures and commodities brokerage firm providing actionable proprietary research and a trade desk to speak with as much or as little as you want.

Phillip Streible, Chief Market Strategist

***AUTO-TRANSCRIBED***

Good morning. It’s Monday, December 4th, about 6 a.m. Central Time. Overnight, the precious metals are capitulate, fading after Sunday night’s blow off top. You’ve got February gold unchanged at 2089. March silver down $0.30 at 2556. March copper down 675 at 386 and January. Platinum down one at 935. So a lot of volatility in the overnight session. I really think that it was the low volatility environment that was in the gold market where Friday we start to get the explosive move higher.

You get the news over the weekend that the Pentagon confirms a U.S. warship and commercial ships came under attack in the Red Sea. That’s where this volatility starts to explode out. So remember, it’s been in a low volatility market and now you have this vortex of volatility. So looking at U.S. Treasury yields, gold pushed to those new all time highs on Friday because the expectations for an interest rate cut in March is about 51%.

That’s 25 basis point cut in a 7.6% chance of a 50 basis point cut. Do I think that Jerome Powell will actually go through with these cuts? I think that would be a little bit too naive to think that he’s all of a sudden going to turn into a dove and start to reverse the process that what they’ve done.

Now, if the economy is truly that bad and they have to do that, why are U.S. equities marching on and pushing on substantially higher? Shouldn’t they be a lot lower if these clear warning signs are there? So I think that that’s something that’s out there. Now, something else is that if you have those tensions in the Middle East, if you have any disruption of the oil market, oil prices are going to shoot up.

That’s going to push up inflation expectations. They’ll have to hold those interest rate hikes much longer than expected. The dollar index will experience a short covering rally. U.S. Treasury yields will continue to go up and that should weigh in on the precious metals. So there’s something to be sort of up there. Now, what was last night’s move? I think it was mostly some short covering that was out there from people that were barely hanging on to the Friday session on the short and then some re buyers coming into that market because of those Middle East tensions.

Now, I did hear a lot of rattle that, you know, these large commercial banks are short and they’re caught with a short squeeze and blah, blah, blah. The reality is, is that the only people that are truly short within these major banks and the ones that you know, the JP morgan’s, the Goldman Sachs, the Morgan Stanley’s, the ones you guys like to say are the manipulators, the short sellers and things like that.

They’re actually bullish on precious metals right now. So if you look at like JPMorgan’s 2024 commodity outlook says steady demand growth should push prices of key commodities like oil higher off their current levels across commodities. The only structural bullish call we hold is on gold and silver. If you look at Goldman Sachs, their 2024 outlook, it says metals outlook better days ahead and then they start explaining the reasons why they’re structurally bullish on things like copper.

If they’re bullish on copper, you know that silver will follow suit with that. So don’t think that these banks are the ones that are truly short. It’s the mining operations. If you ran a company and your forward production, I don’t care what it is, if it was bread or milk or whatever cars, and you could sell those cars, you could hedge those forward at record high prices, of course you are going to pre-sell the prices.

Might go higher from here. That’s where you have the hedge in place and that’s what the markets were designed for. So now getting into the technicals here on the precious metals, what I don’t like on silver makes a higher high overnight explosive higher high takes out Friday’s low. That’s a bad sign That’s called an outside bullish reversal. You do have prices are a bit extended from where they are right here and it would be healthy to bring in new investor longs and a correction downwards, perhaps at a 2200 day moving average at 2418.

A little bit before that, that’s going to be your level where you start going into a neutral trend again between 2340 and the 2418 level. You go into the gold market, another one is almost on the outside bullish reversal, but you need prices to go lower. So your line in the sand today on the gold market is going to be 2055.

You don’t want to see prices close below there. Then we’re most likely going to go into a consolidation type phase. Now, crude oil futures, they were up substantially on the overnight session on that Middle East news and they had backed off. Now, if you want to track where inflation’s at and where inflation is going, you’ve got to really look at kind of the three CS out there.

I’ve heard economists use that. They look at crude oil. They look at copper and they look at corn. So that’s going to be your metals for your inputs. You’re also your crude oil, which is your best gauge of inflation. And then corn, which represents food. So that’s an easy way to look at things, just quite simply. Now, here this week, we are going to have a slew of economic data coming out.

I mean, literally a ton of economic data and a ton of job related data jolts ADP non-farm payroll. You have ISM services, PMI tomorrow. You got factory orders today, U.S. trade balance. So you’ve got a ton of stuff coming out this week here that you’re going to want to keep an eye on. If you have any questions. Try not to chase some of these markets and also recognize that that $60 $7 move in the gold market and now we’re on change on a day.

Think about the retail guy who’s got his ETF account, his miners account. He’s unable to get out of that. That’s one of the benefits that I have to say, that it’s important that people have a futures trading account and you don’t know what’s going to happen at what particular time in Sunday night. Volatility is truly here right now.

So if you have any questions, give me a call. 3128587303. Remember, futures and options trading does involve risk. Loss may not be suitable to all investors. Good luck and good trading.

***END OF TRANSCRIPT***

Phillip Streible, Chief Market Strategist

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On the date of publication, Phillip Streible did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.