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Sell-offs In Gold & Silver Push Prices Closer to Our Buy Zones

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Big downward corrections over the past few days in gold and silver have driven prices down to just above key support. Gold settled yesterday at $1,466.40 per ounce, down 3% from last Fridays close. Silver settled at $17.01 per ounce, a drop of 5.8% over the same time frame.We view both of these declines as opportunities to establish or add to long positions in anticipation of a volatile election year in 2020.

Gold and silver have a long history of doing well during periods of chaos and disruption. Not surprisingly, theyve taken it on the chin over the past few days. This was due to Jerome Powells stock-boosting rate cut and the good news of progress in the Phase 1 trade negotiations with China announced earlier in the week. News that interest rates in Europe have become a little less negative also helped push metals lower.

But have things really changed all that much? We doubt it. Weve been hearing about good news in trade talks for a long time now. We are still waiting.We sense there will be an agreement on trade. But that doesnt necessarily mean good news for the USA.A buy the rumor, sell the fact trading opportunity in stocks may be developing. Stay tuned.

Famous billionaire investor Ray Dalio made a splash earlier this week with his LinkedIn interview/blog postThe World Has Gone Mad and the System Is Broken. We believe every serious investor should read it. Stocks may be making new highs, but if Mr. Dalio is right, that doesnt mean all is well.

Here are some of Ray Dalios key observations:

  • Money is free for those who dont need it, and unavailable to those who do.
  • Flooding the system with more liquidity is driving up the price of assets as those who dont need the money scramble to find places to put all the cash being thrown at them. None of this is helping the real economy.
  • Global debt levels have reached the point where an economic crisis is almost inevitable.
  • Pensions will be under tremendous stress due to declining returns going forward.

RMB Group will be exploring all these observations in our next blog post. We will also expand the conversation to talk briefly about the fractional reserve banking system, which we believe to be the source of the wealth-generating dynamism in capitalism. We also believe it is this dynamisms nemesis. Debt has the power to create but also to destroy.

The explosion of global debt is the full moon shining over Dalios world gone mad. As the chart below illustrates, debt is now larger than at any other peaceful period. This is one of the reasons why we believe it would be foolish to expect a return to normalcy anytime soon.Debt and default nearly destroyed the modern global economy in 2008. With the worlds central banks nearly out of ammunition, expect the next crisis to be far worse.

Gold and silver have a long history of out-performing in times of crisis. We will continue to keep a close watch on both.

Silver Getting Closer to Key Support

We remain extremely bullish on silver, especially in relation to gold. Weve lowered our 6-month upside target in silver to $19.50 per ounce and our 12-month upside target to $22.50 per ounce due to recent corrective price action. This is down from our prior objectives of $20.00 and $23.00 per ounce respectively. Key support remains at $16.00 per ounce.RMB trading customers who already have long positions in silver may want to consider using a downside probe below $16.50 ounce as an opportunity to add to bullish positions.

Those without a long position in silver may want to consider dipping their toes in the water here.We still like the December 2020 $20.00 / $23.00 bull call spreads using the COMEX 5,000 ounce options we recommended in our latest special reportSilver for Pennies on the Dollar.These spreads settled yesterday for $1,875 each.

Consider purchasing a half-position using the bull call spreads referenced above at current levels to gain some exposure. Pay no more than $1,900 per spread. Your maximum risk is the amount you pay plus any transaction costs. These spreads have the potential to be worth as much as $15,000 each should silver futures rally to $23.00 cents per ounce at or prior to expiration on November 24, 2020 a little over a year from now.We get upside exposure to silver through the 2020 presidential election without a whole lot of risk.

Data Source: Reuters/Datastream

Gold Also Near Key Support

Gold has performed far better, from a technical perspective, than silver throughout its year-long rally. So it makes sense that it hasnt retraced as far as its poorer cousin. Gold is, however, close to its first key support levels at $1,450 per ounce. RMB trading customers whove been following our 2019 campaign in gold know that weve been lightening up our bullish position after each of our upside objectives have been met. $1,640 is our last remaining objective.

RMB trading customers who dont have a pre-existing bullish position in gold may want to consider establishing one should the yellow metal dip below $1,450 per ounce.Consider purchasing December 2020 $1,550 / $1,650 bull call spreads or December 2020 $1,600 / $1,650 bull call spreads using the 100 ounce COMEX options. Check with your RMB Group broker for up-to-date prices.

Data Source: Reuters/Datastream

Please be advised that you need a futures account to trade the markets in this post. TheRMB Grouphas been helping its clientele trade futures and options since 1991 and are very familiar with all kinds of option strategies. Call us toll-free at800-345-7026or312-373-4970(direct) for more information and/or to open a trading account. Or visit our website Want to know more about trading futures and options? Download ourFREE Report, the RMB Group Short Course in Futures and Options.

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The RMB Group

222 South Riverside Plaza, Suite 1200, Chicago, IL 60606

This material has been prepared by a sales or trading employee or agent of R.J. OBrien & Associates (RJO)/RMB Group and is, or is in the nature of, a solicitation. This material is not a research report prepared by a Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.


The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO/RMB believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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The RMB Group is a full service commodity brokerage firm specializing in providing clients with access to futures and commodities through managed futures, individual futures trading services, and providing “one-on-one” advice and customer service. From alternative investment solutions to individual futures trading, we pride ourselves on building relationships and designing investment opportunities that fit your personal risk tolerance and interests. With an average tenure of 20 years of financial markets experience, our brokers are seasoned veterans who excel in customizing strategies for experienced investors and mentoring beginning traders.

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