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Gold/Silver: Getting near the crossroads

Commentaries & Views

This week was another historic week in the markets with the FOMC leaving the Fed funds target rate unchanged at 0-0.25% and provided new forward guidance for the policy rate. The Fed adopted outcome-based criteria, where "until labor market conditions have reached levels consistent with the committee's assessments of maximum employment and inflation has risen 2% percent and is on track to moderately exceed 2 percent for some time." Additionally, the Fed has a "Summary of Economic Projections" or (SEP), where they expect the 2023 unemployment rate to drop to 4% and headline and core inflation to reach 2%. The policy statement's change leaves us with two variables that will determine the next direction in precious metals and two variables that will keep that direction going.  

Variable one -Additional asset purchases 

Last week, the Fed did not make any changes to its current asset purchase program, and the only asset left for the Fed to buy are individual stocks. They will most likely refrain from doing so until stock valuations and Nasdaq volatility head lower, hence the market's current correction. 

One hint a trader could use as an early indicator to central bank stock purchases is to monitor the Swiss National Bank's U.S. stock portfolio to see if additional purchases occur. 

Variable two - Dollar direction and the economy

We all know first-hand that aside from the sudden rush into pandemic proof technology stocks and consumer discretionary stocks, there will be negative growth in the economy from now on. This negative growth is what the Fed has been fighting since March by inflating all asset classes through massive stimulus measures at the cost of the U.S. Dollar. This declining growth, combined with a declining dollar, leaves the economy in a state of "Stagflation," which is ideal for a continuing upward trend in gold/silver. However, other Central Banks are attempting to weaken their currencies, i.e., the Bank of England with the pound at 1.30 and the European Central Banks Euro at 1.20. If they try to weaken their currencies, this could strengthen the U.S. Dollar pushing the U.S. into a "Deflationary" environment, which is a negative for commodities, gold/silver, and stocks. To keep you up to date on the macro environment, we have created a "Gold Trends Macro Book," it has been updated with silver slides. This monthly updated booklet will provide you with all the quantitative analysis of the precious metal markets.

You can request yours here: Free Gold Trends Macro Book.

Technical view of the gold market

We remain favorable on Gold across all timeframes; however, this includes a more bullish longer-term outlook and a cautious near-term rangebound outlook. Ultimately, traders do not want to be chasing strength; otherwise, they would be simply chasing their tails. Price action never settled out above 1973-1976.6, and this favored selling through yesterday. Simultaneously, support from 1928-1932 did not give, and price action responded very well off a low of 1938.2. Our momentum indicator holds at our Pivot, and yesterday's settlement of 1949.9 is the first critical support.

I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold." The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here:  5-Step Technical Analysis Guide to Gold.

What to watch going forward

If the Fed is focusing exclusively on employment and inflation data to determine stimulus measures, we should also. Weekly employment reports such as initial claims and monthly employment data from ADP and the nonfarm payroll number will be more critical to precious metals than ever before. Additionally, if the headline and core inflation data heat up as measured by CPI and PPI, the Fed indicated that it would respond. You would want to reduce your excess overweighted precious metals at this point and take your position down to your core position or back to just your physical position. Precious metals remain a predictable and tradable market right now with decreasing volatility, and the public is still drastically underweighted. 

Our strategy

If you did not get our recommendation before 1910 hit, you might want to adjust your initial entry to 1930. Otherwise, if you have been working with us and you were and are looking to position in gold for the long run; we suggested that our clients consider using FOUR Micro 10 oz December Gold contracts per $25,000 and buying TWO at 1910 and TWO at 1855, with a stop at 1790. Doing such would ideally risk $3,700. We would look to a gold target of 2275/oz, which would allow for a profit of $15,700. If you would like to be up to date on the developments of our strategies in the futures and commodities markets, please register for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up

Disclaimer: The views 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 accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.