2nd Gold Target Hit - Silver Is Along For The Ride

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Includes: AAAU, AGQ, BAR, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GLD, GLDI, GLDM, GLDW, GLL, IAU, IAUF, OUNZ, PHYS, PSLV, QGLDX, SGOL, SHNY, SIVR, SLV, SLVO, UBG, UGL, UGLD, USLV, USV, ZSL
by: RMB Group
Summary

Wednesday was a big day in metals; the $30 per ounce rally is just the latest expression of global fear sparked by escalation of the tariff war with China.

With Europe flat on its back and the euro weak, gold and (finally!) silver appear to be the only reasonable alternatives left to those wishing to diversify out of the dollar.

This is why we expect the rally in both metals to continue.

It was a big day in metals. The desire for an alternative currency not enmeshed in the Sino-American trade war has pushed the price of gold well past our second long-term objective of $1,500 per ounce and well within striking distance of our third long-term objective at $1,640 per ounce. Wednesday’s $30 per ounce rally is just the latest expression of global fear sparked by the Trump Administration’s escalation of the tariff war with China.

Gold has thousands of years of history as the preferred currency in a crisis. With Europe flat on its back and the euro weak, it and (finally!) silver appear to be the only reasonable alternatives left to those wishing to diversify out of the dollar. This is why we expect the rally in both metals to continue. But first we need to manage some of the bullish positions we already have on. Moves like these are rare and have a history of retracing quickly.

Data source: Thompson/Reuters

RMB Group trading customers who took our suggestion to buy June 2020 $1,450 / $1,500 bull call spreads for around $750 each using the COMEX gold options should consider exiting now. These spreads are currently trading for around $2,600 each. Consider replacing these positions with new call spreads designed to take advantage of a move to our third price objective of $1,640 per ounce.

We expected gold to rally, but not as fast as it has. That’s why we recommended June 2020 options rather than sticking with the December 2019 options with a shorter expiration window. But things have changed. The bull market in gold is running hot. Instead of using June 2020 options to establish new long, you may want to consider using December 2019 options instead.

We like the December $1,600 / $1,650 bull spreads which are currently going for around $850. Prices are changing rapidly.

Silver Also Making a Move

Silver was matching gold nearly step for step Wednesday, up 65 cents per ounce as we write this. We figured it was just a matter of time before the poor man’s gold awoke from its long slumber. As the chart below illustrates, Wednesday’s rally to $17.26 put silver right in the middle of our first target range of between $17.00 and $17.50 per ounce that we established in our blog post of early July. Our second upside target of $20.00 per ounce is now in play.

Data source: Thompson/Reuters

RMB trading customers that took our suggestions to purchase December 2019 $16.00 / $17.00 and $16.50 / $17.50 bull call spreads using COMEX silver options for $965 and $675 respectively should consider exiting now. The $16.00 / $17.00 spreads are currently trading around $2,700. The $16.50 / $17.50 spreads are going for roughly $2,200.

Consider replacing these positions with similar spreads using higher strike prices. December COMEX silver $18.50 / $20.00 bull call spreads – currently going for roughly $1,200 – could be worth as much as $7,500 should silver rally as high as $20.00 per ounce by option expiration on November 25, 2019. December COMEX silver $19.00 / $20.00 bull spreads are going for roughly $700. These could be worth as much as $5,000 given the same scenario. Like gold, silver prices are changing rapidly.

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