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.
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