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Gold/silver:This is a game changer for precious metals

Commentaries & Views

Precious Metals traded uneasily early in the week leading into the latest FOMC meeting, where weakening economic data led to the Fed's first "pivot." In conjunction with the rate decision, the Fed released the "dot plot," indicating two more 25 bps by year-end, taken from the Bank of Canada and the Reserve Bank of Australia's playbook. Speculation led to a volatile trading session, leaving Precious Metals right on critical support levels, and once the "thinly traded" overnight session reopened, it seemed like an orchestrated hit-job was underway by a large financial institution with a seemingly large short position looking for a way out. Now we won't name names, but the actions of the European Central Bank on Thursday and another cycle high in initial claims (262k vs. 246K exp.) have left the short sellers in a very uncomfortable position. Remember, every bull market begins with a short-covering rally.

The action by the Fed is entirely parallel to 2018. At the Fed's last hike in the 2018 cycle on December 20th, when the S&P was -17%, the bank said it planned to hike twice in 2019. That never happened. Instead, they cut three times that year, with the first coming in July. You can see how Gold played out below, resulting in a $700 rise over the next 18 months.

Monthly Gold Chart

Since challenging all-time highs in early May, Gold futures have traded lower for five of the past six weeks before running into critical support at $1950/oz. We remain optimistic that a near-term bottom is in place and that overhead resistance lands at two levels. We will want to watch the psychological $2000 level and ultimately $2008 as your breakout level. Any close over $2008 should trigger a short-covering rally up to all-time highs and ultimately extend up to our long-term target of $2500/oz.

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Daily Silver Chart

Our short-term recommendation for cheap insurance allowed Silver traders to find comfort while a train wreck formed in the overnight session on Wednesday. While a price setback would be temporary, our long-term thesis remains that tightness in the physical markets, a decline in mining supply, and solar and EV demand should offset any potential for prices to decline further. Over the next 18-24 months, we expect Copper to make new all-time highs and Silver to break $35/oz.

Having the flexibility to enter and exit the market quickly makes it essential for Precious Metals investors to have a futures trading account alongside their core Physical Precious Metals holdings. If you are interested in speculating on the rise and fall of the price of Precious Metals on a shorter-term basis, such as two weeks or two months, or If you have never traded futures or commodities, check out this new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. 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.