Where is the Bottom in Silver? Data, Yen Calls, Debate

Overnight, Precious Metals are mixed after Yesterday’s sell-off.

August Gold again held $2300 with a low of $2304.9; I suspect a significant amount of weakness in Copper and Silver stemmed from the expiration of the July futures contracts. After watching 1000s of traders over the past 23 years as a commodities broker, what tends to happen is a trader will hold on to a losing contract for the duration up until expiration and either not have the capital to roll the position over or exit the futures all together. That lowers the open interest and weakens the strength and foundation of the underlying market; you want market participants.

What will happen since those traders exited is when the market begins to recover, those traders on the sidelines will become frustrated and re-enter the market at higher levels.

Economic Data

We will see a significant amount of economic data over the next two days. Reports on economic growth and weekly unemployment claims are on traders’ radars before tomorrow’s key inflation figures. 

GDP, Durable Goods, Trade balance

GDP is expected 1.4%, Clains are expected at 236,000

Yen

There have been many calls about the Yen, which has weakened to 161 versus the Dollar, the lowest level since 1986. To reverse the trend, the Fed will need to cut rates, while the BOJ will need to hike. This is because institutions borrow cash in Yen at low rates, then sell the Yen, converting it to Dollars, and then Buy treasuries yielding 5%.

My opinion, the best way to play this is a calculated risk option or option call spread.

Debate

Trading precious metals or commodities around an election, with the candidates so far apart in policies, opens the door for a wide range of volatility. Metals, Grains, and Energies are the top markets to watch. Keep an ear open for discussions about Chinese trade tariffs, Iran, Energy independence, geopolitics, and monetary and fiscal policy.

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