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Trade view / 04 June 2018 at 10:33 GMT

Trade View: Shorting silver on the June 13 Fed hike meeting

Global Macro Strategist / Saxo Bank Group - Singapore Hub
Singapore
Instrument: XAGUSD
Price target: $15.78/oz
Market price: $16.4438/oz
Background

We're adding to our tactical gold shorts into the next Fed hike (June 13) with new short silver positions.

This is at 1x capital, so $10m, entry at $16.41/oz with a target at $15.78/oz as well as a time stop of June 14 – the day after the rate hike. Watching gold for signs of this trade idea being wrong, gold closed on Friday at $1293.40/oz... a retracement back above $1330/oz would change the bearish technicals and momentum that have recently plagued the shiny yellow metal. 


Overview of this gold and silver pattern in the current hiking regime... 

  • The average performance of gold going into the Fed hike meetings has been -$23.37 or -1.97%
  • This would give gold, which closed at $1293.40/oz last Friday: an implied range of $1298.50/oz to $1244.47/oz, with $1270.03/oz being the avg. implied price, a -1.81% move from Friday.
  • To put it another way, based on historical data points, the implied move on gold is from +0.39% to -3.78% from $1293.40/oz until the close of Thursday Jun 14.
  • Gold has traded lower 5 out of 6 times in this cycle so far, so shorts would have been right 83% of the time for an implied skew of 6.3x (average down move / average up move)
  • The average performance of silver going into the Fed hike meetings has been -$0.64 or -3.86%
  • This would give silver, which closed at $16.41/oz last Friday: an implied range of $16.21/oz to $15.57/oz, with $15.78/oz being the average implied price, a -3.88% move from Friday.
  • To put it another way, based on historical data points, the implied move on silver is from -1.20% to -5.10% from $16.41/oz until the close of Thursday Jun 14.
  • Silver has traded lower 6 out of 6 times in this cycle so far, so shorts would have been right 100% of the time.
  • A tactical trade view with short gold and silver exposures look compelling, whether expressed outright, or through buying puts and put spreads on the precious metals. The Fed is the key event around this and the Jun 14 date acts as a time stop on the trade view.

Management and risk description

Key Risks

  • Geopolitical risks in Europe [In fact our Chief Economist & CIO Jakobsen put a long gold / short USD trade on Spanish political risks] as well as the Korean peninsula escalating over the next 10 days.
  • Potential risk-off driven by confusion over potential trade war fears – here we go again!
  • A weaker USD and/or lower US yields could give the precious metals a bid.
  • The Fed chooses not to hike – highly improbable, yet a good trader must envisage all potential pathways.
  • From a technical analysis view, any sustained gold squeezes that take us back above $1330/oz, potentially could reverse the bearish indicators and technicals we are going through.
  • Historical patterns come and go in the markets.

Parameters

Entry:  $16.41/oz

Stop: This is a NAV trade and is at 1x capital, so $10m 

Target: c. $15.78/oz

Time horizon: 10-11 days... with a time stop the day after post the Fed June 13 meeting. 

chart
Source: Saxo Bank

chart
 Source: Saxo Bank
 

Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here
04 June
Patto Patto
Does any real money -yours or Saxobank's - get put on these trades or is it just play money?
04 June
MyTrade MyTrade
I also would trade against these ideas.
04 June
MyTrade MyTrade
How low this once excellent page has gone is tremendous.
05 June
Treve Treve
well said guys! has all gone to the birds as they say, I subscribe now to Max McKegg and that is enough for me!!
05 June
MyTrade MyTrade
Rememer, end of the cycle like no other. Buy everything and then wonder what story for Q318 will be created. All material had been recycled :). SELL might be forbidden, next step? Shouldn't be surprised.

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