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Gold/Silver: Silver investors this is how you play Wednesday's FOMC meeting

Blue Line Futures - Fri Jan 27, 2023

We saw another strong week for Gold as it continues to outperform the other metals with tailwinds set in place to push it through the $2,000/oz mark, led by the end of Fed rate hikes and a declining U.S. Dollar. At the same time, optimism and uncertainty surrounding the Chinese reopening and weaker economic data have started to damage industrial metals. That has led to the increasing divergence between the spread between Gold and Platinum while also creating a floor under the Gold/Silver ratio.

Gold/Silver Ratio


Gold/Platinum Spread


Looking ahead to Wednesday's "volatility-driven news event," the Federal Reserve is set to raise interest rates again. Everyone is looking for whether the Fed will take a stance similar to the Bank of Canada and indicate that this is the end or whether it will maintain a hawkish stance and keep its foot firmly on the gas pedal. In either case, Silver could break out of its month-long consolidation pattern in a big way.  To further help you develop a trading plan, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold that can easily apply to Silver." The guide will provide you with all the Technical analysis 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 Silver.

Daily Silver Chart


Silver Options Strategy 

Silver truly is the sleeping giant right now, and while the chart pattern has been sideways, most traders are not paying attention to the daily "Average True Range" (ATR). ATR measures volatility, taking into account any gaps in the price movement over a specified time period, typically 14 days. Currently, Silver is experiencing a 77.5-cent average true range. Historically, the breakout is often violent and directional when we have seen this heightened volatility within a tight trading pattern.

Using Fibonacci analysis to conduct a probable outcome once the floor or ceiling is broken leaves a breakout objective of $28 on the upside or $20.50 on the downside. Much of the direction will be determined by comments from Jerome Powell, order flow from large funds, and stop-loss triggers from speculators. A strategy a trader could consider would be a "long strangle" and is constructed by purchasing a Call and a Put option. For example, buying the March $25 strike Silver call and simultaneously buying the March $22.50 put option for a net premium of 50 cents. Since Silver futures are 5,000 ounces, the total cost of the strangle is $2,500 (plus any commissions and fees). That leaves your breakeven with either a move below $22 or an upside to $25.50. If a downside move to $20.50 were to occur, the trader would gain $10,000, while a breakout to $28 would show a $12,500 gain. For these shorter swing moves, futures contracts are the best investment vehicle for attempting to profit from a short-term rise in precious metals. If you have never traded futures or commodities or would like to learn more about taking delivery of Silver, I just completed a new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. You can request yours here: Trade Metals, Transition your Experience Book.





Chief Market Strategist

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Blue Line Futures LLC

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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.

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