Gold/Silver: The only business model and ratio you need

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A wake-up call is sounding in the global economy, accompanied by a shift from reflation to something else. I don’t know what that something else is, but it’s somewhere between deflation and stagflation. Besides these two, I am convinced that the Fed has found itself stuck between a rock and a hard place; meanwhile, the Delta variant presents new economic risks on the downside. Further lockdowns are unlikely in the United States, but several countries are already seeing their economic conditions deteriorate. China saw its growth stagnate, which led them to reduce their reserve requirements while Spain was down 7% over the month and Japan declared a “state of emergency”, to say the least. name a few.

Rate of change Annual GDP growth vs. inflation model

Interestingly, inflation data will continue to rise in the United States in the third quarter, while GDP growth forecasts will be revised downwards due to supply chain problems and labor shortages. ‘work. Backtesting models indicate that this will become a more challenging environment for small cap stocks while supporting gold. We continue to welcome any weakness in the gold market as an opportunity to position for the second half with year-end price targets north of $1925/oz. To help you better understand the quantitative analyzes of the precious metals markets, we have created a free “Gold Trends Macro Book”, updated with silver slides. You can request yours here: Free Gold Trends Macro Book.

Gold weekly chart

Gold Strategy

Last week I wrote that “We continue to add to our strategy below as gold and silver attempt to solidify a technical bottom”, while this week gold was flat above- above key psychological support at $1800/oz while firmly above trendline support at $1775/oz. . If you are one of our clients and have worked with us and are looking to position yourself in gold for the long term, we suggest you consider using FOUR Micro 10oz December Gold Contracts in $25,000 increments and buy TWO at 1775 and TWO at 1685, with one stop at 1640. Doing this would ideally risk $3,600. We would look to a gold target of 2100/oz, which would allow a profit of $14,800. If you want to learn more about the strategies we implement or learn more about technical analysis, we have created a guide to provide you with all the steps to create an action plan used as a basis for entering and exiting the Marlet. You can request yours here: Precious Metals 5-Step Technical Analysis Guide.

Gold/Silver ratio

Daily Money Chart

March Money Strategy

Silver becomes oversold against gold based on the gold/silver ratio and returns to resistance at 70:1. Based on the next bull market we expect in gold, the ratio offers another opportunity to gain exposure to the silver market. Silver futures happen to be one of the most liquid markets, trading nearly 23 hours a day and offering offers closely resembling the spot market. With the firm belief that silver will continue to rise over the next nine months, we recommend our clients with as little as 5-10k in risk capital to position themselves in a calculated risk “call spread” with a risk of 1:3 for reward scenario.

We build the spread by buying the March 2022 Silver call option at $28 while simultaneously selling the March 2022 call option at $30.50 Silver. Since silver futures are 5,000 ounce contracts, each cent movement represents $50 and each dollar movement represents $5,000. Since this spread is two and a half dollars wide, its maximum value would be $12,500 and the current cost of the spread is 50 cents or $2,500 plus commissions and fees. This also represents your maximum risk. The maximum gain would occur with the March silver futures price closing above $30.50/oz at expiration on February 23, 2022. The maximum gain is $12,500 minus $2,500 (cost ) minus your commission and fees, leaving you with approximately $10,000 (plus or minus your brokerage). The spread whenever futures contracts are traded may be liquidated before expiration; however, it may not capture the full maximum profit due to time remaining. If you would like to be up to date with developments in our strategies in the futures and commodities markets, please register for a free two-week trial by clicking the link here: Blue Line Express Two-Week Free Trial Registration .

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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