A Busy Two Weeks for Precious Metal Prices

The month of May ended last Friday with a sharp pullback in Comex precious metal prices. However, June has begun with a bounce. What will the remainder of June hold? Much of that will be determined over the next six or seven trading days.

As you likely know, both COMEX precious metals are off to a fine start in 2024. As of the end of May, COMEX gold is up about 12% year-to-date, while COMEX silver is up more than 25%. It has been great fun to watch these rallies unfold, but now the question becomes: What happens next?

In large part, where prices head over the course of the summer may be determined by the events of the next few days. What's coming?

Upcoming Economic Events Impacting Gold and Silver Prices in June

• Tuesday, June 4: JOLTS job openings and quits data
• Wednesday, June 5: ADP jobs report for May, Productivity and Unit Labor Costs, and the latest service sector PMIs
• Friday, June 7: The latest US employment report and an update to the unemployment rate
• Wednesday, June 12: An update on inflation at the consumer level with the latest CPI report. Later that day, the June FOMC concludes with another Powell press conference and an update on economic projections and the "dot plot."
• Thursday, June 13: An update on inflation at the wholesale level with the latest PPI report

How will all that information impact the bond market? Will the expectation of Fed funds rate cuts increase or decrease based on the news? And how will the U.S. dollar index perform? Answer those questions, and you'll have some idea of how the COMEX precious metals might navigate this minefield.

Let's start with the bond market. As you can see below, the yield on the U.S. 10-year note peaked near 5.00% in early October of last year. This coincided with the Comex gold price bottoming near $1800. Lower yields are generally good for gold, so watch this rate closely over the next two weeks.

Changes to interest rates will impact the U.S. dollar index as well. In general, a rising dollar index provides a headwind for COMEX precious metal prices, while a falling dollar index gives gold and silver a boost. Note that the chart of the dollar index below looks a lot like the chart of the ten-year note yield. Both peaked in early October, both bottomed in late December, and both peaked again in April. As such, you can conclude that if rates fall, the dollar index will fall too, and as the dollar falls, COMEX precious metals often rally.

Gold and Silver Price Trends: Key Factors to Watch This Summer

And what about those Fed funds rate cut probabilities? As it stands on June 3, one rate cut before the end of the year appears certain, with about a 50/50 chance of two cuts instead.  

OK, so let's put all of this together and see if we can forecast where COMEX precious metal prices are headed this month. Fed Chair Powell has repeatedly stated his concerns about keeping rates too high for too long and potentially sparking a recession. The most recent economic data has trended toward weakness, to the point that the latest GDPnow forecast from the Atlanta Fed has seen the projected growth of U.S. GDP for Q2 fall from +4.2% to just 1.8%.  

My suspicion is that the U.S. economic data will continue to worsen and that Powell will be forced to recognize this at the conclusion of the FOMC meeting. Interest rates and the dollar index will decline, and rate cut expectations will grow. If I'm right about this, then the COMEX metals should have a good month.

How good? That remains to be seen, though there are certainly some price levels to watch for a breakout and rally.

On the chart below of COMEX gold, you can see where the price is stuck in a trading range and consolidation phase. How will we be able to spot the initiation of a new rally in price? Watch the top end of the range. Any breakout above $2480-$2500 should generate enough momentum to drive the price toward our next objective near $2650.

COMEX silver experienced a tremendous rally through the months of April and May. However, it has since moved into its own trading range and consolidation phase. What happens next will determine its fate into the summer. Can it hold above $29-$30 and sustain its breakout? If it does, then $34-$36 should be next. If it doesn't, then support will be found near $28, and another attempt at a breakout will have to wait.

So, the stage is set, and now we wait to see what happens next. While we can't know for certain what the data will show, we can state with a high degree of confidence that we're about to enter a period of extreme volatility. Buckle up, be ready, and consider using any downside price action to add to your stack of physical precious metal.