Another great week to be long this "Commodities Super-Cycle" as multiple commodities broke out to new contract highs, states Phillip Streible of Blue Line Futures.
You may already know that the rising commodity prices front runs the inflation data making it essential to keep adding incrementally on corrections to commodities. My recommendation would be to focus mainly on energies and industrial metals.
The explosive CPI data released Wednesday marked the largest monthly gain since 1981 on the heels of the rapid reopening. The report's focus showed that airlines, auto, and lodging saw the biggest price increases along with constrained supplies, explosive demand aligned with aggressive monetary and fiscal policy.
You are probably asking yourself by now, why am I getting all macro on you? Because the chart below is going to be the one you need on your radar.
If you can get the macro backdrop correct, you can get the dollar right, get Treasury yields right, and spillover effect into the things you care about, i.e., gold and silver. With faster economic growth and accelerating inflation, we should see the yield curve ramp-up to new cycle highs.
That is where the industrial demand for silver kicks into high gear, and gold tries to hang on for dear life. For the past two decades that I have been trading, writing, and covering the precious metals markets, we have always seen silver act as the victim of gold price movements and due to the nature of leveraged short-sellers. Well, this time around, looking at CFTC non-commercial net long positioning, we can identify that gold has roughly half as many net longs as its one-year average while silver is quietly building week over week.
Rising yields will lead to continued "trimming" of gold longs; however, the price of gold may not see the sizable correction one would expect and actually will "drift" higher due to the rising demand for silver as an asset. While gold is just a currency that sits in a vault collecting zero interest, silver, on the other hand, acts as an inflation hedge and industrial metal. In preparation for the next "breakout" in silver, we are constructing bull call spreads using the futures contract for exit timing flexibility along with manageable leverage.
Learn more about Phillip Streible at Blue Line Futures.
