Are the Fed behind the curve? Gold/silver pairs idea could work

2021년 11월 14일

With many debating if the Fed (and other central banks) are behind the curve, precious metals are finding good flow and hedging activity. As we know, in a truly bullish environment for gold, silver, platinum and palladium, if the market sees the Fed as dangerously behind the curve, and not taking notice of the ever deeper negative real rates, the hedge is precious metals.

Silver, as the high beta brother, tends to outperform in this backdrop.... which makes the idea of this pair quite the macro trade.

If the ratio closes below 72.77 - the neckline of head and shoulder of the ratio - then we'd look for the technical target of 66 to come into play over a period - where trading the two metals - i.e. short of gold/long of silver - could work well.

As we watch breakevens rates and US 5y5y inflation swaps, if US real rates continue to head into record lows silver should outperform gold and this is a great trade idea, as well as a macro guide too.

The best way to express this is to start with a USD notional value - say 50k, and divide this by the price of gold and silver. This will give the position size for both legs, so one does not have a directional bias. One can then beta weight it, but that can be more complicated.