Over the past 12 months, Gold Futures had surged nearly 60% into a Monday all-time intra-day high of $4398 per ounce. This marked its strongest rally in decades as investors piled into the precious metal amid economic and geopolitical uncertainty, along with a steady erosion of institutional trust around the world.
With the price of bullion rising 32% since mid-August, daily price volatility in gold and silver turned extreme last week, while both the miners and silver began to show relative weakness. This was a warning to investors that the relentless 9-week rally in both precious metals was set for some healthy profit-taking.
Tuesday's 5.4% plunge marked gold's steepest single-day decline since 2013, tumbling over 6% at one point, to drag silver and other metals down with it.
The recent price action suggests an unknown period of choppy, highly volatile trading that is driving away speculative bulls and bears in the futures markets, for fear of them getting whipsawed after the CME raised margin requirements on Gold Futures by 5.5% and Silver Futures by 8.5% last Friday.
Although the abrupt downturn via panic long liquidation and margin-call selling in the futures markets has rattled some investors, this overdue correction of recent outsized gains is a healthy and inevitable tactical retreat following a period of sustained, aggressive gains.
After a blistering 70% rise YTD, a 7.2% downdraft in silver from an all-time high above $54 per ounce last week marked its largest daily net decline since September 2011.
As reported in this column two weeks ago, silver had entered into backwardation in early October amid very short supplies of the metal in London, driving prices there significantly above those seen in New York.
This supply squeeze was a major catalyst for silver to breakout to an all-time high above 45-year resistance at $50. This silver Magino Line of resistance was destined to be a battlefield, as the metal reached a price area where paper traders test conviction, producers hedge future output, and nervous longs lock in profits.
After a significant wave of metal shipments arrived from the U.S. and China over the past week, the massive influx has alleviated the physical shortages.
This increase in physical metal at the LME contributed to lowering both spot price premiums and short-term borrowing rates. When combined with last Friday’s CME 8.5% increase in margin requirements, this set the tone for some heavy profit-taking and take the silver price down below the key $50 level by mid-week.
With the dust barely settled on the recent supply squeeze in the silver market, zinc has continued flowing out of LME warehouses, leaving just 35,300 metric tons, barely enough to cover one day's worth of global consumption. Arrivals have been minimal despite the widening premium for cash delivery.
Moreover, spot prices for platinum in London surged by as much as 6.4% to $1646 an ounce on Wednesday, the biggest intraday jump since 2020. Platinum futures on Nymex also jumped, but only as much as 4.1%.
Platinum is “tightening heavily with dislocations now pushing extremes, echoing fears of another silver-squeeze moment,” said Dan Ghali, senior commodity strategist at TD Securities.
After coming within $25 of reaching key near-term support at $4000 on Wednesday, December Gold has already posted a 9% decline in just two days before a late Wednesday recovery took the safe-haven metal back up to $4150 by Thursday’s Comex close.
Over the past few weeks, gold´s implied volatility is around its highest in three years. On Monday, CME Group announced that total volume across its metals complex reached a record 2,829,666 contracts last Friday. Volume surpassed the previous record of 2,148,990 contracts set less than two weeks earlier.
I expect precious metals volatility to remain extreme, as the Federal Reserve goes into the next week’s policy meeting with its view of the economy obscured while one of the longest U.S. government shutdowns in history has suspended the release of key economic data.
This is a less-than-ideal situation for policymakers divided over which risks deserve the most attention, with the central bank expected to lower rates another 25-basis points in the face of inflation remaining well above the Fed’s fantasy 2% target.
Ahead of this week’s Fed-speak blackout period, Chairman Jerome Powell leaned easy on U.S. monetary policy despite rising inflation concerns. He said in a speech to an economics group that the Fed is on track to deliver another quarter-point interest-rate cut on October 29.
The Fed Chairman pointed to the low pace of hiring and said the jobs sector may weaken further, adding that further declines in job openings might show up in the unemployment rate.
Soon, the bank will no longer shrink its $6.6 trillion balance sheet, previously allowing $40 billion of mortgage-backed securities and Treasuries to mature each month without replenishment.
Powell insisted that the Fed needed to buy into these vehicles during the post-pandemic recovery to lower rates in a failed attempt to manipulate the business cycle.
“With the clarity of hindsight, we could have—and perhaps should have—stopped asset purchases sooner,” Powell said. “Our real-time decisions were intended to serve as insurance against downside risk.”
As the Treasury continues to issue record debt, gold and silver continues to be the safe-haven alternative as the private sector is no longer interested in purchasing it.
China began selling off U.S. debt long ago and has been buying gold with the proceeds. Japan, the top foreign holder of U.S. debt, is also selling as the country is facing a massive default due to its own mishandling of fiscal policy.
Foreign central banks have been net sellers of U.S. Treasuries for years, and domestic institutions will not absorb endless new issuance without higher yields.
The Fed is stuck because it must continue expanding its balance sheet merely to fund government. But it will never be sufficient because politicians continue spending into eternity without any intention of paying off debt.
The U.S. government’s gross national debt surpassed $38 trillion on Wednesday—just two months after it reached $37 trillion—which comes as the government continues to navigate the federal shutdown.
Powell said he and his colleagues are looking to alternative data sources due to the shutdown, which is reducing their read on the U.S. economy.
The ongoing government shutdown has further complicated matters, halting key data releases and forcing the Fed to steer policy with limited visibility, raising the risk of missteps as doubts grow over its future independence amid rising fears of a sovereign debt crisis.
Once this healthy correction of unprecedented outsized gains has run its course, the convergence of powerful drivers in falling real yields, and surging central-bank gold purchases amid perpetually rising sovereign debt levels will continue to support gold’s long-term trajectory.
But in the short-term, both silver and the miners’ relative weakness continues as gold attempts to hold $4000 support, warning of further profit-taking before the precious metals complex can resume its strong secular bull market.
JP Morgan on Thursday forecast gold prices reaching an average of $5,055 per ounce by the fourth quarter of 2026, citing expectations of sustained investor interest and steady central bank buying.
"We believe [gold] has even higher to go as we enter a Fed cutting cycle with overlays of stagflation anxiety, concerns around Fed independence, and broader debasement hedging," the bank said in its note.
Meanwhile, the miners remain cheaper in relation to the gold price. On a price to cash-flow basis during the last gold stock bull market of 2001-2011, the miners traded at 10-15x cash-flow.
Despite the gold price more than doubling over the past 2-years, the miners are trading at an average of just 7x cash-flow, presenting investors a lower-risk entry point this week as ETF inflows have already increased significantly in September.
With the miners set to announce Q3 results next week, gold averaged $3458/oz in Q3, up 5.2% q/q, 39.6% y/y and a new record quarterly price. Silver averaged $39.53/oz, up 17.3% q/q and 34.2% y/y and a record quarter.
At the same time, WTI oil futures averaged $65/bbl, up 2.0% q/q but down 13.7% y/y. With diesel prices accounting for up to 50% of total mining costs and AISC averaging $1665/oz, up 3% vs. Q2 and 10% y/y, record margins are expected to be reported for Q3.
After the market close on Thursday, Newmont Corp (NEM), reported Q3 profit doubling to $1.83 billion, or $1.67/share, from $922 million, or $0.80/share, in the year-earlier quarter.
The largest global gold miner reported adjusted EPS of $1.71 to comfortably exceeded analyst estimates, while revenues rising 20% Y/Y to $5.52 billion also topped consensus.
With GDX soaring 65% since mid-August to a fresh all-time high above $85, the major miner ETF gapped down below uptrend line support this week with huge volume as gold stocks begin to rebalance long-term extreme overbought technicals and sentiment.
There is support at the 2011 peak at $67, which would be a normal 20% correction in GDX. But if gold loses support at $4000, another sharp move down to its rising 18-week moving average at $64 next week would mark a 25% correction.
Although the mining sector has reached an interim top, the higher-risk/reward junior space still has plenty of catching up to do with lower-risk late-stage juniors, miners, and royalty/streamers, as most are still trading below their 2020 highs.
Despite rising 75% YTD, the high-risk TSX-Venture junior index (CDNX) remains over 75% below its all-time high reached in 2007 when gold was trading near $1000, and 20% from its highs seen in 2020 when gold peaked at $2000.
When zooming out to look at the long-term setup in CDNX, the TSX-Venture has also begun to consolidate recent outsized gains after reaching the neckline of an uber-bullish 10-year inverse head & shoulders accumulative basing pattern at 1000 with rising volume.
Once this level has been breached, the breakout target is over 150% higher at the 2011 high of 2465. When accumulating a basket of quality junior developer/explorers ahead of a probable significant breakout, one can have a life-changing experience as they gain doubles, triples, and even 10-baggers in a short time span.
The JMJ weekly newsletter is a one-stop shop for precious metals stock speculators. Along with providing detailed macro commentary and technical analysis for subscribers following the real-money JMJ junior portfolio, the letter also teaches its members risk management via successful buying and selling strategies.
The real-money JMJ Portfolio is up over 170% thus far is 2025, massively outperforming both GDX and GDXJ. Trimming profits from large positions along the way, while holding core positions until the bull market matures, has been recommended.
Considering the length of the previous bear market, and the severely depressed levels seen in CDNX over the past 18-years in the junior space, a major top in this tiny sector may not be seen for 2-3 years.
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