Gold/Silver: The “Black-Gold” Alternative

Wow, another week that seemingly flew on by, and boy did I rattle some cages by saying that interest rates were going higher. Remember that steadily declining interest rates and a weakening dollar with rising inflation expectations and accommodative fiscal/monetary policies are the mixes we need to get a supercharged gold bull market. Imagine it this way, it’s Friday night, James Bond is on, and we are thirsty for a martini; we have the vodka, the gin, but we are missing the vermouth and olive. We still can get drunk, but it’s not the perfect vesper martini we set out to make.

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So gold is still suffering from a wicked hangover, and its more responsible best friend silver is feeling tricked after suffering the same hangover. If you look at the three-month relative performance of a broad list of commodities, it will look like this. The top three are Heating Oil, Brent Crude Oil, and WTI Crude Oil, up over 25% while copper is up 16%, and platinum up 9%. Scroll down to the bottom of the list, and you will find gold down 5.22% and silver dead last down 10.04%. Now I understand we do not have the right mix for that perfect “Golden-martini,” which comes in the back half of 2021, but my real frustration is silver.

Now I do not want to get hundreds of “its manipulated” emails because that is an excuse; that’s playing the victim. Let us be better than that and focus on strategy. When I worked at Lind-Waldock, I had a seven-figure client who would only want me to call him when silver was down $1.50/oz that day. He felt that the manipulators did their job, and the blood bath panic selling from the little guys allowed the sharks to come in and scoop up an asset at a discount.

Also, I do not buy into the narrative that gold has to go up for silver to go up; however, I get frustrated when I see copper and platinum extend their gains from supply/demand fundamentals while silver does not. One day the reality will set in that silver production has mainly been flat while demand from an increasing number of areas continues to grow, and that is why we maintain long-dated call spreads. I do not want silver futures to break out and then decide on the fly decision as to “where to buy”. It’s better to have insurance and not need it than need it and not have it, is my opinion.

Daily Crude Oil Chart

Since I do not have a high conviction in gold, silver is working out its issues; therefore, we have been more focused on “Black-Gold,” known as crude oil. Crude oil has set itself up as another “reopening trade” with a strong underlying bid under the market. On Wednesday, we saw a 1/2% decline in U.S. equities, a 15 million barrel build in the EIA inventory data, and crude oil futures were still able to manage out a positive gain on the day. Since then, we have seen a clear breakout with $50/barrel in sight for the February contract. We recommend our $25,000 account clients 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 will risk $1625 while seeking to return $3625.

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Originally Posted on December 11, 2020 – Gold/Silver: The “Black-Gold” alternative