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Pop and Drop or Straight Down

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Short and sweet this week. We have the PPI on tap tomorrow (writing this on Thursday), the CPI on Monday, and the FOMC on Wednesday.

If the PPI and/or the CPI come in higher than expected, the pullbacks in metals and miners will be in full swing and the DXY rallies. Then, if the Fed raises 50bp, that likely signals the bottom in Wave 2. If they hike 75bp, Gold and the rest suffer a deeper dive.

If the PPI and/or the CPI come in lower than expected, then we should be a lock for 50bp, and up we go in both metals and miners to a higher high before the wave pullback begins.

Either way, a pullback in the monetary metals is coming.


gold daily chart december 2022

Gold has rallied up to prior resistance at 1824 and stalled there. It is struggling to stay above the 200-DMA. Sentiment is obviously extremely bullish, which is a contrarian signal.

The RSI and the MACD Line are in overbought territory and the MACD Histogram is negatively divergent, which suggests a move down to 1750 and then up to somewhere around 1850 for its peak in Wave 1, followed by a bigger pullback in Wave 2.

If it goes straight up to 1850, we could see an even bigger drop thereafter.

Once we bottom out in Wave 2, I expect Gold to soar in Wave 3 on its way to new record highs at 2300+. Again, this will likely be aided by lower bond yields and a softer Fed.


silver daily chart december 2022

Silver has reached a peak of 23.70, and it’s also extremely bullish and flirting with overbought territory. This may be the peak of Wave 1 or we have another leg higher to go, perhaps as high as 25.

Alternatively, we have already begun a correction back down to a 21 handle in Wave 2.

The negative divergences in both MACDs suggests the latter, but one more pop can’t be ruled out yet.

When we bottom in Wave 2, then Wave 3 begins the march to 35-45, imho.


GDX daily chart december 2022

Same goes for GDX in that it has run into resistance at the 200-DMA, it’s flirting with overbought territory, and it’s negatively divergent per the MACD Histogram. But we can’t rule out a higher high in Wave 1 to 31-32 yet. Events in the coming days will clear this up one way or the other. But as with the metals, miners are due a pullback either way.


SILJ daily chart december 2022

It’s no surprise that SILJ is also struggling at its 200-DMA, and it’s got one more higher high to come before it heads south.


DXY daily chart december 2022

The DXY’s fall has been a key contributor to gains in metals and miners. It has run into former resistance, now support, at 104 and held it so far. The big question is whether it is done on the downside or it has one more lower low to the 50% Fibonacci level at 102. Either way, it is due a big bounce to 108-110, imho. If the inverse correlation continues, this supports the pullback in metals and miners.


bond field daily chart december 2022

While I believe long bond yields have peaked and the 10-Year Treasury is heading down to 1.50%, TLT shows that bonds have had a good run lately as yields drop. The problem now is that TLT is extreme overbought across all indicators and negatively divergent per the MACD Histogram in blue. While it may take a shot at the 200-DMA or go straight down from here, a pullback is coming, meaning higher yields in the short-term. This would likely support a rebound in DXY and contribute to the pullbacks in metals and miners.

In summary, Gold, Silver, and the miners may have one more higher high or have already peaked, but we’re getting a pullback in Wave 2 one way or another, aided by both bond yields and the dollar.

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About the Author

David Brady has worked for major banks and corporate multinationals in Europe and the U.S. He has close to thirty years of experience managing multi-billion dollar portfolios including foreign currency, cash, bonds, equities, and commodities. David is also a CFA charter holder since 2004.

Using his extensive experience, he developed his own process utilizing multiple tools such as fundamental analysis, inter-market analysis, positioning, Elliott Wave Theory, sentiment, classical technical analysis, and trends. This approach has improved his forecasting capability, especially when they all point in the same direction.

His track record in forecasting Gold and Silver prices since has made him one of the top analysts in the precious metals sector, widely followed on Twitter and a regular contributor to the Sprott Money Blog.

*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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