Precious Metals Monitor
Following our piece on the use of Volume Profile Analysis, we do a quick run through the setup in key precious metals futures markets.
Yesterday I introduced Volume Profile Analysis, as an adjunct to Cost-Basis Analysis for the identification of key support and resistance levels in futures markets.
Futures markets are fast in the sense that they have short holding periods.
There is a relation between spot prices for commodities and futures prices that reflects the supply-demand balance forward in time and storage cost.
In simple terms, you could take a position in gold via a purchase of futures contracts and thereby secure a possible delivery of gold on the futures expiry date.
You only put down margin for the futures position but pay the appropriate settlement difference on delivery. Very few futures contracts go to delivery in commodities.
The linkage between the two happens via the cost of storage.
You could buy gold today, put in storage, and pay the financing cost, storage and the insurance, if required today, and then deliver into a futures expiry.
Alternatively, you could take a position in futures and achieve the same result.
In this way, the spot price for commodities converges to futures prices at expiry of the futures contract. In between, they can wander around quite a bit. In the short term, a wide disparity can open up, and the price influence goes both ways.
Spot prices drive futures prices and the other way around.
There are all kinds of effects that can wildly skew prices in the very short run.
We witnessed that last Friday 30-Jan-2026 with wild COMEX trading.
Silver moved over 30% on the day, and I notice is up 9% or so today off the low.
This is what happens in futures markets when latent demand meets financial excess via leverage, and the financial effects of hedging in options contracts.
We only know this now because of the unfolding trading pattern.
The crash has been short-lived and the market is healing.
Options books, especially call options, are finding balance. Volatility makes any option grow more expensive and the way to make it cheap, in high volatility, is to reprice a close to expiry call option through a downward move in the spot market.
This will make a valuable in-the-money call option, that is close to expiry, worth nothing in a trice. Academics can study the trading session last Friday.
We have a fair idea what happened without such study.
The right thing to do now is to build comfort on where this market will turn, and what to watch out for overhead as we climb that wall of worry and flush out the nerves.
Let us dive right in with a quick appraisal of the key levels.
