XAG/USD, Silver Trade Idea & Precious Metals Update with Nikolai Bull

Inflation woes aroused - the Economy is on Heat 🔥 Special guest analyst Nikolai Bull joins Q to spotlight the current fundamentals of traditional hedges against inflation... Precious Metals!

Bull’s fundamental perspective on Precious Metals

With inflation worries on the rise, the market fundamentals for precious metals emerge brimming with positivity. 

To establish the context for such optimism, let us begin by examining a critical driver of the economic machine - debt.

Since the emergence of the COVID-19 pandemic, global cumulative debt levels in both the public and private sectors have risen to USD 300 trillion - an eye-watering USD 36 trillion in about 18 months.

🤔 For perspective, consider the GDP of certain countries in 2020... 🤔

United States was just under USD 21 trillion or USD 21,000,000,000,000

Australia was just over USD 1.3 trillion or USD 1,300,000,000,000

The current global cumulative debt is USD 300 trillion or  USD 300,000,000,000,000

Furthermore, questions weigh heavy over the hopes of sustained and robust economic growth due to two reasons: 

  1. Increasing worries surrounding the Delta variants persistence 

  2. Rising doubt on the longer-term efficacy rates of vaccines

Like pouring accelerant on a fire, US Fed Chair Jerome Powell’s reluctance to announce the formal beginnings of the taper at the annual Jackson Hole Summit fueled speculation of pessimism amongst policymakers at the central bank. 

In other words, the Federal Reserve is not convinced that the economy can firstly withstand less Quantitative Easing (QE) - let alone higher interest rates.

Turning to the East, the Chinese economy is now showing clear signs of a slow-down. Remember that China accounts for approximately 18% of global GDP.

As one primary engine of global economic growth sputters, resurgent heavy spending from a stimulus-ridden US population inflames the immediate inflationary pulse. Moreover, supply chains play catch up from relentless disruptions faced during last year’s global shutdowns that caused shortages of certain goods and rising prices.

Placing the puzzle pieces together:

  • Inflation is on the rise

  • Debt is at unprecedented levels

  • Economic growth stutters into stagnation 

  • Hesitant policymakers pussy-footed in tapering 

  • Potentially serious adverse effects should tapering begin (i.e. raising interest rates)

  • Decreases in asset purchases

One would think precious metals should be on a steep upwards trajectory. However, both Gold and Silver have been somewhat lacklustre since their peaks in late 2020. 

Take the case of Silver, which has not surpassed the all-time highs from the Global Financial Crisis (GFC) period. Conversely, Gold hit all-time highs briefly in the latter part of last year before slumping range-bound between USD 2,000 - USD 1750.

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Does Silver still have a breakout left in it? 

The reality is undoubtedly plausible - and it may appear when it is least expected.

It is difficult to convey the absolute extent of the ‘monetary and fiscal experiment’ over the past few years. 

However, adopting a historical perspective yields positive indications of precious metal’s superiority in accounting for sharp expansions in governmental debt - observe the evidence in the chart below.

Based on market fundamentals, Silver poses a significant trading opportunity...


Q's Technical Perspective: Silver, XAG/USD

Silver continues consolidating inside an enormous flag-like structure, under formation for approximately 12-months. 

Upon breaking, this range may encounter sporadic volatility after the extensive amount of time spent in consolidation. 

Silver, XAG/USD - Monthly (1M)

Qluster analysts first employ the Fibonacci retracement tool from an all-time high of USD 49.8X per Oz to the most recent low of USD 11.49X Oz.

Recognise the two blatant rejections from the 0.5 retracement zone. 

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Silver, XAG/USD - Weekly (W1)

The double-tap around USD 30.1X further illustrates the liquidity - or trapped positions - staggered around a range in between USD 28 and USD 30 per oz. 

Subsequently, re-apply the Fibonacci retracement tool and focus attention on the channel flag currently forming. 


Silver, XAG/USD - Weekly (W1)

The team utilises the W1 candle closes to model horizontal support and resistance. These levels for the XAG/USD pair are USD 22.9X (S) and USD 28.XX (R) respectively. 

Thus, closes above or below would unquestionably induce the volatility necessary for an impulse move after some 12-months of consolidating.

During the interim, Silver must defend against a weekly close below USD 22.9X per oz. 

Beware this behaviour of punching out stop-losses multiple times before moving higher is not uncommon for Silver.

Silver, XAG/USD - Daily (D1)

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Q's Conclusion

Qluster analysts remain vigilant for long opportunities on XAG/USD, following a current weekly close above or on USD 22.9X.

Minimal leverage with stops below USD 21.15 may assist in avoiding a stop hunt. 

Silver, XAG/USD - Daily (D1)

Gold (XAU/USD) may serve as a proxy for confidence in Silver (XAG/USD) based on a correlation between the precious metals. 

See you again for the next update.

- q + Nikolai 

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