If you read last week’s article, “How do Gold Investors play the fading War Trade,” you will know I was preparing for a correction this week, which played out perfectly. Gold futures could work their way lower from here, given the amount of premium pumped into the market from the October 6th lows until the October 27th highs (+ $196.20). The Hezbollah leader already discredited widespread escalation on November 3rd that triggered an exodus of those fortunately enough to capture the previous upward move.
From the October 27th highs until this week’s lows, we have only seen 1/3 of the rally retraced. Given last week’s softer Non-Farm Payroll data and the correction in 10-year Treasury yields (40 bps), I expect the “floor” on Gold prices to be well above the October lows—most likely in the low $1900s, high $1800s. How do we get there? Fed Chairman Jerome Powell said Thursday the Fed “is not confident it has done enough to bring inflation down.” In layman’s terms, “We are not messing around,” and that “hawkish narrative” drives Gold down there.
Looking at the CME FedWatch Tool, expectations for a December rate hike surged from 4.8% last week to 14.6% after Powell’s comments. Is he “all bark, no bite,” let’s be serious: economic data is declining, and credit is tightening. Can he raise it one more time? Sure, but what is he accomplishing? The softening data continues into mid-2024, when the Fed should make its first interest rate cut and end 2024 at 4.55%. I expect lower Gold prices in the near term, followed by another “leg” higher into the end of the year and 2024.
Daily Gold Chart
Gold futures have technically disappointed after breaking the 200 (DMA) at $1983 and continue to work lower. The next support zone is $1950 down to $1936, where a close below $1936 could spark additional selling back down to our “value area” $1910-1885. While we do not see Gold challenging the October lows, much depends on the pace of a ceasefire, Fed interest rate decisions, and investor sentiment. We saw capital inflows into Precious Metals over the past three weeks, but that capital is quick to move to other asset classes, such as the Nasdaq, Bitcoin, or “risk-free” Treasury products.
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Daily Silver Chart
Silver failed to punch above the 200 DMA on October 20th and has since drifted lower. The Gold/Silver ratio has drifted higher to 86.50: 1, and without a severe change to China’s economic situation, I do not see Silver prices breaking out to the upside. At this point, the only cure for lower prices is lower prices. We see long-term value in owning Silver, below $22/oz and down to $20/oz. To help you develop a technical trading strategy, we have recently updated our “5-Step Technical Analysis Guide,” which will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: New 5-Step Technical Analysis Guide.