As we head into the home stretch of 2021 after a volatile third quarter, reflation trading remains intact. We continue to see an increase in inflation with vacation rentals; therefore, we recommend that you be selective in your strategy. The recent rebound in the dollar and the rise in real interest rates by 35 basis points in three weeks has caused gold to fall rapidly. However, the question arises whether this rally in the dollar and rates is real?
Our analysis leads us to believe that the dollar will fail this upper band resistance again, and quite frankly, commodities do not believe in the dollar rally either. The Fed is trying to tighten to limit the impact of higher inflation; However, the Fed cannot resolve logistics supply constraints, adverse weather conditions leading to food inflation and pent-up demand due to the economic reopening. These are the reasons why every investor should have a “bucket of real assets” in their portfolio. If you’ve never traded Futures or Commodities before, I just completed a new tutorial guide that answers all your questions on how to transfer your current investing skills into real asset trading, such than the 10-ounce gold futures contract. You can request yours here: Trade Metals, Transition your Experience Book
While researching ideas for exposure to inflation trading in the next quarter, we based these high conviction ideas while considering fundamental, quantitative, technical and weather predictive models to signal multiple markets.
Key points to remember
Bullish catalyst: After hitting a multi-year high in July 2021, prices retreated, digesting the effects of the severe frost that caused significant damage in Brazil. Expectations indicate that more than a quarter of production has been lost and that it will take several years to recover, while supply chain constraints simultaneously prevent a constant flow of new supply from Vietnam, a another big producer. We believe demand to reopen is still in its infancy, where prices could challenge 2011’s. See the chart referenced below:
Bullish catalyst: One would be discouraged from making an overtly bullish call after the race to new all-time highs in August 2020 and recently seen hardened resistance of $ 1,820 to $ 1,835 an ounce. Bulls have been knocked down several times, but I don’t believe they are out of the question. While the Fed has openly done a great job in presenting its tapering case and will most likely go through with it, the problem it will face in Q2 2022 is the same mistake it made in mid-2019. It was then that they tightened their policies in an economic downturn that ultimately led to disaster. See December 2019 highlighted below. To help you better understand quantitative analyzes of precious metals markets, we have created a free “Gold Trends Macro Book”. You can request yours here: Free Gold Trends Macro Book.
Bullish catalyst: Besides Goldman appealed for $ 90 for Brent crude oil at the end of the year and Chinese Vice Premier Han Zheng ordered major state-owned energy companies to guarantee supplies for next winter. ” at all costs “, we focus on the numbers. Current EIA stocks of 418 million barrels show a growing production deficit from the five-year average of 450 million barrels, leaving us with an annual change of -73 million barrels. I will stop there; you fill up with gas, you know where the prices are going. Table over one year below.
Bullish catalyst: Everyone knows about the chip shortage and how it continues to weigh on US auto stocks. With sales numbers set to drop next week, isn’t there a weak outlook? The reality is that supply chain bottlenecks will eventually be resolved. With 2022 quickly approaching, automakers will halt production to push New Year’s deliveries. We have seen platinum hit a seasonal low in early October and end in early November 8 over the past 10 years. See table below “search for a fund”
Bullish catalyst: Dry conditions in producing areas have caused wheat production to drop sharply, and with food inflation on the rise, governments around the world are scrambling to replenish stocks. End users are going through an equally difficult time, forcing them to “pay at all costs”.
Due to space and time constraints, I’ve limited this list to just five high conviction “real assets” to keep on your radar. We strongly believe that many more will benefit and potentially outperform, such as the prices of silver that goes on sale this week or the demand for sugar ethanol which is accelerating due to the rise in prices of l ‘energy. Cocoa is another threatening multi-year high today, and don’t forget the Dow Jones’ seasonal trend to recover from the last week of October through early December. If you would like to learn more about our strategies in the futures and commodities markets, please sign up for a two week free trial of our research by clicking the link here: The Blue Line Express Two Week Free Trial .
Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.