Weekly Update: December 16, 2015
Weekly Update: December 16, 2015
Big Picture Outlook:
Today was a rather historic day in the marketplace…
For the first time in nearly a decade, the US Federal Reserve raised interest rates. That’s right, Fed Chairman Janet Yellen took rates higher by 0.25% in this afternoon’s FOMC meeting release.
Surprisingly, the market reaction has been rather subdued…
While stocks are sharply higher, the US Dollar index is up only modestly (0.21%) after the news.
More importantly, commodities like gold, silver, platinum, and palladium are all tacking on respectable gains this afternoon.
Why are precious metals higher in the face of rising rates?
Let me explain…
Despite sending the federal funds rate higher, Janet Yellen was decidedly dovish in her post FOMC interview.
The Fed Chairman said additional rate increases will only come if economic data supports such action. What’s more, she mentioned further rate increase will not be evenly spaced- another signal the Federal Reserve will remain accommodative.
How will this new information impact the markets?
First of all, stocks will likely benefit in coming weeks as a major source of uncertainty is now gone. What’s more, there’s a strong seasonal tendency for equities to rise in the final two weeks of the year.
As far as precious metals go, we’ll need to keep monitoring the US Dollar. Additional upside in the currency will likely keep gold and silver bulls under wraps for the foreseeable future.
However, if the Greenback sets a new low in the days ahead, the odds of a barn burning gold and silver rally will increase.
Bottom line…
Even though interest rates are modestly higher, I’m no longer convinced precious metals are doomed in 2016. There’s a distinct possibility investors look to gold and silver to protect against the threat of inflation as the US central bank remains accommodative.
Let’s check in on a few of our open positions…
Portfolio Highlights:
Note: I won’t update every open position in every update. I focus on the positions with significant news or price movement.
. . . . iShares Silver Trust $SLV December 18, 2015 $14 calls
Believe it or not, the price of silver put together strong gains today despite the Fed’s interest rate hike. The metal rallied as high as $14.30 an ounce in afternoon trading before closing the day at $14.15.
Unfortunately, today’s silver rally wasn’t enough to kick $SLV back above our $14 strike price. The silver tracking ETF closed today’s session at $13.49. Remember, these calls expire this Friday so we’ll likely see them expire worthless.
. . . . Market Vectors Gold Miners $GDX December 18, 2015 $16 puts
Here’s a put trade we initiated in late October that’s finally expiring this Friday. We hit both our profit targets in these $GDX puts, collecting gains of at least 100% in the process.
Since these puts are in the money, you’ll need to exit any remaining contracts by this Friday. If you don’t, you’ll be short $GDX from $16 a share come Monday morning!
. . . . Freeport McMoran February 19, 2016 $9 calls
$FCX just can’t catch a break. Stubbornly low copper prices and global economic uncertainty have the miner stuck in a resilient downtrend.
Remember, $FCX hit our risk control line at $7.50 on December 7th. As a result, only aggressive traders should be holding these calls for a potential rebound.
. . . . Newmont Mining $NEM January 15, 2016 $21 calls
The interest rate uncertainty of the past week stopped $NEM in its tracks. The gold miner fell to our $18.50 risk control line on December 14th. If you’re conservative, you may want to close this trade to conserve capital.
If you’re aggressive, don’t be afraid to hold these calls through to expiration in January. Today’s post-Fed price action in precious metals had a promising bullish feel to it.
Remember, our profit targets are at $22.50 and $25.00.
Until next time,
Justin Bennett
***Editor’s Note*** I’ve been holding off on new trades the past week due to the uncertainty surrounding today’s FOMC meeting. But with that market moving meeting now in the rearview mirror, be on the lookout for new trades by the end of this week.
Also, due to the oncoming Christmas/New Year holiday and the light trading that comes with it, we’re taking the last two weeks of the year to spend with family and friends. We hope you do the same!
But once 2016 arrives, be ready to go…
Not only will we be recapping our full 2015 performance the first week of the New Year, I’ll be on the lookout for low-risk/high-reward commodity setups.
With that said, I hope you have a wonderful holiday season!
Category: Commodity Trading
