A Late Summer Rally in Precious Metals

Precious Metals React to Weak U.S. Jobs Data

News that the U.S. has been adding far fewer new jobs than reported sent the precious metals soaring late last week in a reversal that appears to be a precursor to a late summer rally. Appears to be. Could it actually be? Let's discuss that this week.
The news last Friday was certainly distressing. Fed Chair Powell has based much of his current hawkishness on the supposed strength of a "robust" U.S. labor market. However, that optimism was washed away when not only the July numbers came in under expectations, but the months of June and May were revised sharply lower to nearly nothing.

  
This type of abysmal job growth is emblematic of early-stage recession, as noted below in this note from Goldman Sachs:

  
With the U.S. economy slipping (or having already slipped) into recession, you can expect fed funds rate cuts to begin as soon as the next FOMC meeting in September. In fact, after bottoming at 40% last week, the chance of at least one 25 basis point cut at the next meeting has increased to 86%!

  
With rate cuts coming—and, quite possibly, more than the market expects—could precious metal prices be on the verge of a late summer rally? The seasonality of the price gains in gold suggests that the timing is right.

  
But, if we're going to do this, a couple of things need to happen. First and foremost, the U.S. Dollar Index needs to fall back below its key short-term moving averages. The steep drop since Friday's news has begun the process, but it needs to keep dropping in order to provide the backdrop for daily speculator buying of COMEX gold and silver futures.

U.S. Dollar Index
  

Gold and Silver Technical Levels to Watch

If the dollar index can keep falling—and if the bond market continues to rally on the expectation of lower interest rates—then we can begin to watch very closely the daily price charts of COMEX gold and silver.
For COMEX gold to finally break out and move higher, it must first maintain the foothold it has regained above $3400 and its own short-term moving averages. You can see this quite clearly on the chart below of the front month Dec25 contract.

Gold Price - Daily Candlestick Chart

For this contract, price is in a well-defined range between $3300 and $3500, with $3400 as the midpoint. Above $3400 and you have a likelihood of another attempt at an upside breakout. When that comes, a move to $3700 or so should quickly follow. The news flow and seasonality suggest that the time for that breakout is now.
As for COMEX silver, the calendar is a little murkier, so we have to proceed somewhat cautiously. However, if gold is about to finally break out of its current consolidation, then it's likely that silver will play along. 
The chart below reveals the key level for the front month Sep25 contract is $37.50 as price attempts to paint over the possible head-and-shoulder top on the chart. Once price gets back above $37.50 on a daily closing basis, the door will reopen for a shot at breaking out above the previous highs in a move that takes price into the lower 40s. The key, though, is $37.50, so watch that level very closely the rest of this week and into next.
Notice that price has held a backtest of support at the 50-day moving average too. Climbing back above the 20-day will cement the pending move to new 2025 highs.

Silver Price - Daily Candlestick Chart

Eyes on Charts and News Flow for Breakout Confirmation

In summary, the time is right for a late summer rally that carries gold and silver prices to new 2025 highs. But keep an eye on the charts, as they will be your tell. The news flow and price action later this week might determine whether or not we can finally break out to the upside.

Start investing in gold and silver today—capitalize on the next big move.
Don’t wait. Buy gold, buy silver while prices consolidate.