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Stars Aligning for Metals & Miners

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The Bullion Banks continue to cut their shorts in Gold, and the Funds are paring their longs too. Commercials are back to positions consistent with all of the prior lows in the past 18 months.

chart 1

Commercials also have their lowest net short position in Silver since June 2019.

chart 2

While this does not signal the low is in place just yet, it does say that it’s close.

The markets got a little concerned about a hawkish ECB ahead of their meeting today, but as expected, it was a “buy the rumor, sell the fact” event. The ECB was less hawkish than expected, citing the need for more QE to support the bond prices of peripheral countries such as Italy and Greece. The EUR dumped on the news and the DXY rose, putting pressure on the metals and miners. The risk of one more higher high in DXY remains before it dumps when the Fed reverses course (or before).

Regarding the Fed’s next 180, we get the CPI data tomorrow:

USD chart

The headline CPI is expected to remain flat at 8.3%, and the core CPI, excluding soaring energy prices, is forecast to fall again to 5.9%. While this is not sufficient to throw in the towel on rate hikes and QT, signs that the economy is already in recession and the job market is not as robust as we’re being told bring the inevitable policy reversal closer.

‘Jobless Claims Jump Most Since Last July, Hit 5 Month High’

How can I say it’s inevitable? For many reasons, but this is the latest:

‘The US Economy, Including Jobs, Collapsed in May,’ as did Federal tax collections, according to Lee Adler at liquiditytrader.com.

If Lee is right, and it sure looks like he is, the Fed 180 will come sooner rather than later as deficits soar. Who's going to buy the new Treasuries being issued to fund the deficits and the maturing bonds? The ECB and BoJ already have their own problems.

Again, I believe it occurs by September or October this year at the latest, but likely sooner.

So how much lower could we go ahead of that?

GOLD
GLD chart

Anywhere below the prior low of 1785 would suffice as long as we stay above the bottom trendline in red at around 1740. By contrast, a break back above 1880 could signal the bottom is already in place.

SILVER
SILVER chart

Anywhere below the prior low of 20.42 but above 18. A close above 22.50 would suggest the bottom is in.

GDX
GDX chart

A sustained break above 33.50 would negate the downside potential, but ideally, a drop below 29.66 and above 28.40 would set us up for the big rally to follow.

SILJ
SILJ chart

A move back above 12.20, but more importantly, a close above the 200-day moving average would confirm that the bottom is in, imho. But a drop below 10 and above 8 ahead of that would truly create the fuel for the massive rally to follow.

In summary, the stars are aligning for Gold, Silver, and the miners, much like in Q4 2015, but we’re not out of the woods just yet. For those of you who don’t want to risk catching a falling knife, wait for a break of the resistance levels I cited before buying. The key unknown is the timing, but it’s months at most, imho.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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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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