Gold/silver: it’s just a matter of time

It was an explosive week for Gold and Silver where, just one month ago, expectations were at a 21% chance the Fed would continue to raise rates right into January. The market only expected two rate cuts in 2024, one in June and one in December. Investors were preparing for a “Hard Landing,” so they shifted funds into high-yielding, liquid money markets, getting 5%. Although a recession appears probable based on weak ISM Manufacturing data and Conference Board Leading Economic Indicators 

Inflation has moderated where consumers have benefited from lower oil prices, which have helped bring the national average gasoline prices down to $3.08/gallon. Going back to June of 2022, the national average for regular unleaded was $5.01/gallon. 

30-year fixed mortgage rates have also declined for seven consecutive weeks. Additionally, the housing component of the CPI should continue to fade in the coming months, helping solidify the disinflation narrative into early next year. That type of data pushed the “dot plot” to indicate three interest rate cuts in 2024, making the 5% “hard landing” safe-haven investor scrambling to get some action in precious metals and equity markets. 

Daily Gold Chart

Technically, it was a constructive week for Gold, with prices trading back above the 200 DMA ($2008) and the upward-sloping 50 DMA ($1999), which could trigger what is known as the “Golden Cross” early next week. Resistance on the charts remains at $2061, where any breach above on a closing basis should trigger the next wave of short covering followed by fresh buying. Momentum studies are turning higher, with stochastics rising from oversold territory. Where is my line in the sand? Pocket support for Gold is between $2000 and $1990, where any close below $1990 could spark “panic” liquidation. We see value in adding to Gold positions near the 200 DMA. 

What could trigger a selloff? Key Fed members could discredit the chances of a rate cut and indicate that inflation remains too high. In the future, as a precious metals investor, monitoring speaking engagements done by Fed Officials will be essential. 

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Daily Silver Chart

While Gold has been able to rekindle an old flame, Silver remains in “no man’s land.” Prices are neither “too high nor too low, ” and the Gold/Silver ratio remains between 86 on the upside and 80 on the downside. Silver must close above $24.93 to trigger the next wave of short covering. We have seen a series of higher lows since October, and steep corrections should attract new longs entering the market. While multi-year production deficits are expected, and Mexico is experiencing stricter mining laws, it will ultimately take a recovery in China to breach $30. Stay patient, add to positions in “value zones,” and eventually, this rocket will achieve liftoff. 

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