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Gold/Silver: A multi-year buying opportunity

Commentaries & Views

As challenging economic trends lie ahead, the Fed has pivoted from extreme dovishness to outright hawkish. Their dual mandate of price stability and maximum employment has them in the same predicament they faced in 2018 when they continued to raise rates into an economic slowdown. From the peak in October 2018, the S&P corrected 13.6%, finishing the year down 6.24%. December 2018 was their last rate hike in the cycle, and by July 2019, they began cutting rates due to deteriorating economic conditions. As equities declined in 2018, Gold bottomed, and the following year 2019, Gold returned 18.9% and Silver 15.3%. I believe that once a bottom is complete, we should see similar returns in precious metals.

2018 Daily S&P Chart

Daily Gold Chart

Unfortunately, right now, trying to locate a hard bottom in precious metals has proven to be a difficult task. The strong Dollar has pushed the Euro down to parity, and with Gold having a 96% inverse correlation to the Dollar, strong headwinds remain. Wednesday, U.S. consumer inflation data released was the highest since 1981, reaching 9.1%. Although it's a lagging indicator, traders are now increasing their expectations from a 75 bps rate hike on July 27 to a 100 bps possibility. Looking at the 'Fed Watch Tool," I believe those expectations are greater than 50/50. Gold will unlikely reach a bottom until the inflation data has deteriorated enough to stop higher interest rate hike expectations and begin to bring them lower. Long-term charts indicate a monthly technical base sits at 1685. To help you identify additional long-term support and resistance levels, we created a Free "5-Step Technical Analysis Guide to Gold and 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.

Monthly Silver Chart

Despite Chinese copper imports increasing double digits from May to June, the challenging economic trends continue to weigh in on base metals. Economic trends often go from Boom to Bust and back to Boom. Once the recession is here and we are in the bottom innings, the current administration's only hope to save face with the American people is to launch a spending plan to revitalize the economy. They will also reevaluate the rate hike cycle and, similar to 2019, adjust by cutting rates. Copper, silver, and other base metals will likely take off again. At the same time, riding the sell-off until that time will require significant patience and possibly additional capital applied to Dollar cost average down depending on your starting point in metals. Monthly support remains in the mid $16's where silver traded from 2013-2019. If you have never traded Silver futures, we completed a new educational guide that answers your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. Additionally, you will receive a free two-week trial to our flagship report, "The Morning Express," giving you critical levels of support in resistance in the Gold and Silver. You can request yours here: Trade Metals, Transition your Experience Book.

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.