Gold/Silver: The three scenarios you need to know
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
It was an eventful week for U.S. Equitites, with inflation data hitting 40-year highs and consumer sentiment reaching an all-time low. One bright spot was on Monday, where Silver caught a small bid on news that the Biden administration announced tariff suspensions on solar panel components from four countries. More importantly, as the week progressed, we saw signs of "safe-haven" investment demand returning to the precious metals. Remember, Silver plays a vital role in producing solar cells and could be the trigger we need to start the next bull leg. It will likely take a one-two punch for Silver to get lift-off where the solar catalyst leads to increasing demand/shrinking supply, and then the investment demand kicks back into high gear as the traders begin to chase the move.
Daily Silver Chart
Looking at the week ahead, on Wednesday, we expect the Fed to raise 50 bps and remain hawkish for the remainder of the year. Following the rate hike, we are watching for one of three likely scenarios in U.S. markets.
Bear Case - Fed continues to tighten while the economy deteriorates, leading to an extended sell-off in U.S. Equities for the remainder of the year.
Soft Landing - The Fed raises multiple times and sees inflation easing. The decline in inflation causes consumers to see their real incomes go up, and they begin to spend again. The Fed will feel they have done their jobs and pause on further rate hikes. Equities should stabilize and start a new uptrend.
Hard Landing - The Fed raises multiple times as economic growth deteriorates into "crash mode." The sell-off in Equities hits the consumer so hard that the Fed needs to pivot back to dovish and cut rates to undo the damage done.
Daily Gold Chart
Gold settled the week with fresh one-month highs despite the stronger U.S. Dollar and rising Treasury Yields. The rally gives new Gold investors defined risk parameters with Friday's low as your stop-out point. We have seen a series of higher lows with key supports just below each while knocking on overhead resistance. To help you with technical analysis,I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold but can easily apply to Silver." 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.