Precious Metals corrected sharply this week, with the Bank of England unexpectedly raising interest rates 50 bps, leaving investors uneasy about the Fed's next move. With the July FOMC meeting 33 days away, the CME FedWatch tool pegs the probability of a rate hike at 77%. Fed Chairman Jerome Powell was quoted recently saying, "he believes there is a path to a soft landing and sees the need for more interest rate hikes and does not see rate cuts anytime soon." My takeaway from the recent sell-off in Precious Metals is that we don't have the clear driving fundamentals to support a rally in Gold and Silver at this time unless we can get a sustained sell-off in U.S. Equities triggering a safe-haven bid, continued stimulus measures from the PBOC, or a breakdown in U.S. economic data leading to a less "hawkish" Federal Reserve. However, I recommend taking advantage of this sell-off to establish a core position to hold 6-12 months out and consider taking delivery in Silver in the low 20s.
Daily Gold Chart
Over the past week, we have seen a dramatic price breakdown leading to "exhaustive selling," indicating the potential for "bottoming action" in Precious Metals. We saw critical support at $1950 break, leaving pocket support from $1920-1900 as your next value zone. We remain optimistic that a near-term bottom is approaching, and overhead resistance lands at four levels. Remember that "old support is new resistance," meaning that $1950-1960 will act as your first resistance level, followed by $1985.
You 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 eventually extend up to our long-term target of $2500/oz.
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Daily Silver Chart
Flows in Silver have been quite dramatic this week, with a $2 correction over a three-day trading period. I had called many bullion dealers to see if there was any discount on prices, and of course, there was not. Therefore it is still my option that your best opportunity is to build long-term exposure to the Silver market using futures contracts that reflect closest to the spot price level. Looking at the price action, Silver tested the 200-day moving average (DMA) at $22.70; however, fund liquidation, margin call pressure, and cross-asset rotations briefly breached the level. The bulls should aggressively defend the $22 level, and any takedown will lead to another wave of new Silver speculators to purchase futures seeking delivery.
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 E.V. 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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