It was an impressive week for commodities across the board, with everything from Precious Metals and Energies to Agricultural markets grabbing headlines.
Inflation remains worrysome
During the Pro-Farmer Crop tour, excessive heat across the Mid-West triggered volatility as farmers asked themselves, "How much heat can this crop handle?" You may ask yourself why metals traders care about crop conditions or energy prices. The answer is simple: food and energy comprise the two main components of inflation. As prices rise, inflation rises, and the Federal Reserve steps up its fight against inflation, leaving interest rates "higher for longer." That impacts the trajectory of Gold prices and is the main reason prices have failed to take out recent highs. On the other hand, Copper, Platinum, and Silver continue to monitor clues from China regarding additional stimulus measures that can potentially boost demand for the metals.
Silver Exploded this week
Silver futures rallied sharply this week, tacking 6.7% coming into Friday's Jackson Hole symposium. While we welcome the gains, it's hard not to pay attention to the seemingly rangebound trading affair we find ourselves in. Prices remain trapped between $22 on the downside and $26 on the upside. Breakout traders will use any close above $24.75 to establish new long positions, while a "breakdown" below $23.39 will spark additional liquidation and fresh "naked shorts" in the market. We will want to re-establish long positions on and correction below $23 while utilizing call options to play an upside explosion above $26. Remember, "every bull market starts with a short covering rally."
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*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
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