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Ahead of The Fed - Craig Hemke (30/04/2019)

FOMC - Federal Open Market Committee Meeting minutes written on an image of red down arrow and green up arrow

April 30, 2019

Another FOMC meeting concludes on Wednesday, and the recent selloff in the COMEX precious metals looks to have run its course. So, what's next?

Last week, we discussed the likelihood that the recent price declines—which extended all the way back to February 20—had found bottoms and had ended. If you missed that post, you can read it here: https://www.sprottmoney.com/Blog/comex-gold-reaches-an-inflection-point-craig-hemke-23-042019.html

And though the 8:30 EDT smashes have continued this week, everything now indicates that the trends have reversed and that another price rally is pending.


So, what do we mean by "everything indicates"? Let's list a few factors:

  • U.S. treasury bond yields are continuing to tumble, with the 2-year note at 2.28% and the 10-year note at 2.52%. This alone precludes any Fed Funds rate hikes, as another 25 basis points would take the effective rate to 2.60%, thereby fully inverting the yield curve.
  • Many economists are now expecting a fed funds rate cut in the coming months. In fact, the likelihood of a rate cut as soon as September is now greater than 50%.
  • The U.S. economy is demonstrably slowing, and inflation expectations have collapsed.
  • The U.S. stock market, though currently near new all-time highs, appears to be rolling over and painting a double top.

Next, consider this:

  • The Relative Strength Indices for COMEX gold and silver are in the 40s. These are the levels from which previous rallies have begun, as this indicates that both are "oversold" and primed for a rally at any time.
  • Both metals have seen their respective Commitment of Traders reports be fully "washed"—meaning the Large Specs and Commercials in COMEX gold have their smallest NET positions since November, while the Large Specs in COMEX silver are actually 110 contracts NET short.

And then check the charts. Let's start with the June 19 COMEX gold contract. Price dropped last Tuesday to within $1 of its 200-day moving average and bounced... twice. Note that this low also fell right upon the trendline that extends all the way back to the 2018 lows seen last August. While price remains in a "pennant" formation, I have confidence that this pattern will soon resolve to the upside. Once it does, another test of long-term resistance near $1360 awaits.

After falling through $15, COMEX Digital Silver found support as expected near $14.70 and is currently attempting to fight back above $15 in this rebound. As you can see below, it has broken the downtrend from February 20 and is back-filling for support. Similar to the recent November-February rally, this next surge will encounter resistance at all of the important moving averages before likely being stymied again near $16 and the strictly-enforced downtrend line on the weekly chart that dates all the way back to 2016.

So: sit back, relax, and watch this volatile week unfold. Once we get Wednesday's FOMC and Friday's employment report behind us, chances are high that another price rally will develop. Though this next rally may not be the one to finally break those long-term, Bank-created lines of resistance, these lines WILL be broken later this year, and when momentum and sentiment inevitably increase, the price gains registered in 2019 will be the best seen since 2010... just as we predicted back in January: https://www.sprottmoney.com/Blog/gold-and-silver-2...

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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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