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COMEX Gold and Silver Prices

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As anyone who has watched the precious metals for any amount of time will tell you, price rallies on geopolitical concerns rarely hold. The same might be true today. However, do not make the mistake of thinking that the current rally in gold and silver is based solely upon geopolitics. There's a lot more going on at present, and those drivers will persist regardless of the outcome of the Ukraine Crisis.

So let's just take a few minutes today to consider what is driving prices and then assess where prices may head from here. Yes, the ongoing crisis in Ukraine is building a "war premium" into the price of COMEX gold, and this premium will persist for as long as the conflict continues.

But the long-term effects of the hostilities are myriad and currently unmeasurable. Yes, the exclusion of Russia from the SWIFT system that we wrote about last week will have long-lasting deleterious impacts on the U.S. dollar. But it's more than that.

In our 2022 annual forecast, we discussed the trends that would prevail later this year and how these trends would drive precious metals prices higher. One of those trends is a growing understanding that the Fed is trapped, that they will never be able to hike the fed funds rate as often as the pundits suggest, and as such, inflation-adjusted or "real" rates would remain negative and begin moving substantially more negative later in the year.

Well, the Ukraine Crisis has dramatically sped up this timetable. Already, forecasts of Fed rate hikes are falling dramatically, and suddenly even a 25 basis point hike later this month is in question. So now the Fed faces the dilemma that we discussed in our annual forecast. To wit, they can’t hike rates into a building recession, and their inability to hike rates— all while commodity prices are soaring—will lead to deeply negative real rates for the foreseeable future.

THIS is why precious metal prices are rallying. Yes, the war premium is a real thing, but even if the Ukraine war ends tomorrow, the damage to the global economy has already been done.

Check again the latest commodity prices. Commodities were already soaring in 2022 as the Chinese Credit Impulse surges and China buys everything that isn't nailed down. But now shortages and embargoes are looking to dramatically impact the prices of key commodities going forward. Crude oil is over $100 per barrel. Copper and all of the base metals are screaming higher. And the grains—staples like wheat, corn, and soybeans—are all at record price highs.

These commodities are all major industrial and consumer staple inputs. The rising prices must then be passed along to consumers or producer margins will shrink and companies will be squeezed. Faced with higher costs, layoffs will follow and the growing stagflationary recession will worsen. This has always been the most likely outcome of the global Covid shutdowns, and the Ukraine Crisis has only exacerbated the issues.

Already, the Atlanta Fed GDPNow predictor has slashed its "growth" forecast for the U.S. first quarter to 0.00%. How much lower will it go? And don't forget, the accepted economic definition of a recession is two quarters in a row of negative GDP growth. It now appears that Q1 2022 will qualify as quarter number one.

So, the conversation is rapidly turning from multiple rate hikes and falling inflation to minimal rate hikes and persistent/worsening inflation. This is what we expected when we wrote our annual forecast in early January. The war in Europe has simply sped up the process.

Finally, let's look at the price charts so that you'll know what levels to watch and what levels will set off renewed surges of buying interest. In COMEX gold, the move above $1920 is important because that level represents the psychological resistance of having once been the all-time high seen back in September of 2011. Once above $1920, the next target becomes the $1960 level that served twice as stiff resistance in late 2020.

However, $1960 will eventually be bested too, and once it is, the target becomes $2000. A gold price that begins with a "2" handle will drive an even deeper awareness of the renewed bull market, and things will take on a life of their own from there.

If you're not sure you can foresee that, then maybe you should check the weekly chart below. This is a classic technical setup of a cup, handle, and breakout that typically targets much higher prices in the weeks and months ahead.

GOLD CHART

And then there's COMEX silver. It has spent the past 18 months digesting and consolidating the 60% gains it posted over a three-week period back in 2020, and it is still contained within its price range of $22 to $28. However, it's now back above its 200-day moving average and the critical mid-range price of $25. Any weekly close above $28 would constitute a breakout. Once above $30, the momentum bulls will get excited and the next target quickly becomes $34. You can likely imagine the move in the mining shares when this happens, too.

SILVER CHART

So, what to do next? Well, first of all, pray for peace. War is always a tragedy, and any war that potentially pits nuclear-armed superpowers against each other is particularly dangerous. Let's hope things simmer down soon. However, as a precious metal investor, it's vitally important that you understand the forces that are now driving prices higher, regardless of the war's outcome. To that end, I hope you found this article helpful.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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