Don’t Miss the Biggest Rally in Gold and Silver since the 1970s

Starting with the Big Picture:

The Fundamental Drivers for Gold and Silver

1.      Stock market crash and Fed 180: This would likely drag down Gold, Silver, and the miners sharply but briefly, just like in 2008 and 2020. But that would be a gift given what happens next: rate cuts and QE. For the record, I still see the “risk” of one more rally to $5300-$5400 in the S&P before the ensuing 20-30% correction. Insider selling is just one of many signals that such a move down is coming. Regardless of the timing, this is a trigger for even higher prices for both metals and miners going forward.

2.      Wars: Ukraine, Middle East (Gaza), Taiwan? WW3? We have seen from both the Ukraine invasion and the war in the Middle East that such hostilities are great for Gold and Silver.

3.      Stress in the banking system, beginning with the meltdown in commercial real estate, could cause another financial crisis, which also supports higher prices in the precious metals and miners.

4.      Stagflation: The economy is on life support if you look underneath the hood at credit card delinquencies and both individual and corporate bankruptcies, combined with ISM surveys and sliding housing home prices, all while inflation is turning up again. Is this the 1970s all over?

5.      Loss of confidence in fiscal and monetary policies, the banking system, U.S. assets, and the dollar. People see dark times ahead. They’re moving from one state to another and getting out of the cities. Purchases of guns, ammunition, and emergency food stores have been soaring. All of which signal a loss of trust in government and its institutions and agencies. This is the same reason people are turning to precious metals and bitcoin. It also explains why a higher DXY and bond yields are having no effect! Wait until they fall!!

6.      Big players are buying precious metals, including both China and India, possibly Russia too. The central banks have been on a buying spree for years now.

Market Data

GOLD

• Gold peaked on April 12 at $2449.
• The daily RSI is still extreme overbought and falling.
• The MACD Histogram has been negatively divergent for weeks and continues to drop.
• The MACD Line appears to have peaked for the time being at the highest level since Aug. 7, 2020, when Gold hit a new record high at $2089 and fell to $1673.
• Note the gap to the 200-day moving average. It reached a peak of 21% on April 12. This is one of the biggest gaps in the past fifteen years! A reversal in price was imminent, and it may still have lower to go yet.

Now look at the Weekly Chart…

• The weekly RSI is extreme overbought at 78 and still climbing, its highest level since August 2019.
• The MACD Histogram now matches the record peak back in September 2011 and is still climbing.
• The MACD Line is at its highest level since the record peak in August 2020.

Talk about overbought!!!

While rare, this is definitive evidence of what happens when a strong trend dominates the data. Simply said, when we get a strong trend like this one, the data becomes redundant until the trend breaks, i.e., we get a lower low, followed by a lower high.

Even with these extremities, we could go even higher. The daily chart shows that a peak has been reached, but we could still see a negatively divergent higher high after this correction or possibly a blow-off top to $2600-$2750 before we get a big reversal.

As for sentiment, it is extremely bullish. It is as bullish as it was at the record high in August 2020. This is typically extremely bearish for Gold but this too could go even higher before the big drop.

With regard to positioning in recent weeks, the Banks are not significantly adding to their short positions despite the rampant move higher in price. This signals that they don’t want to get run over because the price could go even higher.

In summary, all of the data says that Gold should be plummeting, and it might, especially if stocks fall out of bed. But absent a big correction in stocks and the current reversal in Gold, it still may not be done on the upside just yet.

In fact, when I look at the Elliott Wave structure, it looks like the final 5th wave still has room to run higher.

Then it likely peaks alongside the stock market and they both drop together, but the metals will recover much sooner, imho, just as in October 2008 and March 2020.

SILVER

I don’t plan to go through all the same data for Silver because it is more or less the same as that in Gold, so I’ll just focus on the short-term outlook I see going forward.

Silver peaked on April 12 too, just shy of $30. It is now undergoing a correction to $27.50 at a minimum or as much as $25.50, most likely somewhere in between. Then, like Gold, it will take off, to a minimum of $32 to $37, imho. Then you get one more chance to buy before the train leaves the station.

In conclusion, it is still not too late to jump on board this train—but time is running out. This rally is still in its infancy, imho. Gold will continue to do well. Silver even better. Don’t regret missing out on the greatest opportunity in precious metals since at least the 1970s.