(Kitco News) - Gold and silver prices have hit some resistance at their recent highs; however, one market analyst said this is all part of the precious metals’ consolidation process, and prices are headed for much higher ground.
Overnight Thursday, in reaction to muted inflation pressures, gold prices tested resistance at $2,400 an ounce; meanwhile, silver managed to push to $30 an ounce. However, investors continue to take profits as the Federal Reserve remains uncommitted to easing interest rates this year.
In an interview with Kitco News, Michele Schneider, Director of trading education and research at MarketGauge, said that although the Fed is reluctant to signal the start of a new easing cycle anytime soon, it is clear that interest rates aren’t going any higher. She added that this ultimately provides solid support for the precious metal.
However, Schneider said that the market’s debate on U.S. monetary policy is just a sideshow for gold, silver, and mining companies. She explained that geopolitical uncertainty supports higher inflation and weaker economic activity.
Although markets are breathing a sigh of relief after the U.S. core CPI fell to 3.6%, the first decline in six months, Schneider said that plenty of factors will still drive consumer prices higher and weigh on economic growth, creating a stagflationary environment.
“Economists are still looking at inflation in all the wrong places,” she said. "The inflation we're seeing is incredibly nuanced. This creates a challenging environment where traditional inflation indicators might not tell the whole story."
Schneider said that the evolving geopolitical landscape is the biggest inflation threat, which is providing the most support for gold and silver. Her warning comes after U.S. President Joe Biden imposed 100% tariffs on imported electric vehicles from China. The U.S. government is also imposing higher tariffs on battery technology, solar panels, semiconductor microchips, and other critical minerals.
Schneider pointed out that the U.S. is trying to assert its independence with these steps; however, she added that this might not be viable for long-term growth.
“We know that this path of independence has not necessarily been good. The country is isolating itself, which puts the U.S. dollar and the bond market at risk,” she said. “We already see countries unaligned with the U.S. selling their treasuries and buying gold. Countries are accumulating as much gold because they want to protect themselves.”
At the same time, Schneider said that Biden’s plan to support domestic manufacturing will also raise consumer prices, as companies face higher wages as domestic production increases.
Schneider said that faced with higher costs, it is only a matter of time before consumer activity slows, dragging the economy down.
“I think we are quickly moving towards stagflation, and this is when you want to hold assets like gold and silver,” she said.
As to where gold prices go from here, Schneider said the precious metal’s price action appears to be forming an inverted head-and-shoulders pattern. She added that a break of $2,400 could propel prices to $2,600.
Meanwhile, Schneider said that silver’s solid momentum could push prices above $35 and even as high as $40.
As to how investors should build a precious metals safe-haven position, she said it is currently equally weighted in gold, silver, and miners, representing about 15% of her total portfolio.
“If people are looking to get into the metals right now, I would lean slightly more towards silver and miners due to their growth potential," she said.
Schneider said that investors could also diversify their commodity exposure to include important energy assets like uranium, copper, and natural gas.
She said, “People are just starting to realize how much this AI revolution relies on energy, so you want to keep an eye on these commodities.”
