It was a choppy week for precious metals fueled by a series of market-moving headlines. Coming into the week, I made it clear from the title of last week's article, "Get your five-point racing harness ready," that we would see fireworks. The bulk of the pressure came from Thursday's three-sided attack, where the European Central Bank (ECB) raised interest rates to an all-time high but followed with a dovish press conference citing "a significant slowdown in manufacturing." That dropped the expectations of another interest rate hike in September to a 30% chance. The result was a 1% decline in the Euro Currency, resulting in fresh two-week highs in the U.S. Dollar index. After the meeting, the scheduled U.S. economic data releases of Gross Domestic Production (GDP) +2.4% versus expectations of 1.8% and Initial Claims dropping to 221,000 reaffirmed the resiliency in the U.S. economy and the strength in the labor market further supporting the Federals Reseve's soft landing thesis.
Daily Silver Chart
Despite Thursday's bearish "key reversal," the market momentum remains on the upside. I always believed that the secret to successful trading is "to find an underlying theme in the markets and leverage it." Our long-term thesis remains that tightness in the physical markets, a decline in mining supply, and solar and electric vehicle demand should offset any potential for prices to decline below $22. Strains on the electrical grid and the almost certainty of additional Chinese stimulus should help cement a floor on Copper and Silver prices. Next week we should experience less price volatility, with only the U.S. Payroll data on Friday as your market-moving headline.
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Daily Gold Chart
Gold futures "rolled over" from the August contract to December as your new "front-month," leaving us with new price bands to monitor. Critical support remains at the 200-day moving average, near $1950/oz. The market must punch through resistance levels at $2025/oz to make a run for all-time highs. We anticipate that in the coming 6-12 months, that the Fed's reckless acceleration in interest rates will ultimately catch up with them, leading to a reversal in policy once a contraction in U.S. GDP occurs in Q1 2024. We recommend using steep price declines to position for long-term price appreciation when the Fed reverses on interest rate policy.
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