Gold and Silver Consolidate

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We got the long-awaited pullback and nailed the lows at ~1980 and ~24.75. I don’t have much else to say in the short-term, as Craig Hemke has accurately forecast the targets for Gold and Silver next Tuesday when the options expiration occurs. His targets are $1990 for Gold and $25 for Silver.

He clearly explains why below:

COMEX Gold Options Sweet Spot

Assuming no major event occurs, he’s likely to be spot on. So the focus should be: where do we go from there?

Much of it depends on bond yields and the DXY in the short-term, but the May 3 FOMC meeting will be the true determinant. Given the recent employment and inflation data, expectations still favor a 25bp hike and a “pause” by the Fed. This would be a huge positive for Gold and the rest of the sector, especially following a reversal that provides the fuel to break out to new record highs.

Although a test of the record high of $2089 in August 2020 would be the second attempt to break through that level, I’m not sure we break it on the first attempt. That said, I do believe it is going to be broken sooner rather than later.

10Y Bond Yield & DXY

The DXY is finding little help from higher bond yields recently:

You can clearly see in the chart that the DXY in green is underperforming the 10Y yield in blue since the start of the year. My forecast is for the 10Y yield to fall to 2%. Where does that put the DXY? Well below $100. If this plays out accordingly, then Gold and Silver have a long way to go on the upside.

Using the TLT as a proxy for long bond prices, it has tested resistance at $109 “four” times now and failed, but the pullbacks thereafter are becoming shallower, i.e., higher lows. There’s an old adage in the markets: the more often a door is knocked on, the more likely the door will break down. In other words, it’s only a matter of when TLT breaks to the upside. Higher bond prices mean lower yields, a lower dollar, and higher Gold and Silver.

Perhaps the May 3 FOMC will be the catalyst for TLT to take off and take Gold and Silver with it, especially if we get a “pause” in rate hikes from the Fed.

The only caveat I can see in the short-term is a stock market crash, but even that is likely to provide a brief but sharp drop in the metals, as it did in 2008, and then up it goes again. However, given all of the pessimism regarding the economy and markets in recent months, and yet stocks continue to rebound, the likelihood is that the trend to the upside continues.

In summary, we could see a deeper pullback in Gold, Silver, and the miners to as much as $1900 in Gold, $23 in Silver, and $30 in GDX, but I doubt it personally. The risk-reward is heavily skewed to the upside given the approaching end to monetary tightening, lower yields, a weaker DXY, deterioration in commercial and real estate, and further problems in the banking system.

My forecasts for the peaks in Gold, Silver, and GDX remain the same: $2600-3000 in Gold, and $50-60 in both Silver and GDX.