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More Pain Before Gain

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Fundamental Backdrop

Stagflation is here. The last time this occurred—a period of escalating prices while economic growth contracts—was in the 1970s, when the price of Gold soared 24 times and Silver 37 times. History may not repeat, but it certainly rhymes.

As we saw when the Ukraine war broke out, precious metals spiked higher. War is coming on many fronts.

Governments are spending recklessly, creating record budget deficits and a mountain of debt that is unrepayable except by default or hyperinflation. The dollar’s hegemony on world markets looks like a house built on sand. Confidence in the dollar is eroding fast.

Markets such as equities, bonds, and real estate are hopelessly overvalued and overdue significant corrections. When they fall, the Fed will do what it always does: cut interest rates and print dollars, and we know how that works out for the monetary metals. Go back and look at what happened post-March 2020.

Meanwhile, Central Banks around the world are loading up on physical Gold and Silver and selling U.S. Treasuries at a record pace. China and India in particular. ‘Follow the smart money’.

The point being that Gold and Silver are poised for spectacular gains in the future while the world goes into reverse. It has already begun.

This is the big picture. We have already started a bull market in precious metals that could go parabolic, creating a bubble that lasts for decades. Physical Gold and Silver are also your safe harbor ahead of the looming storm to come.

Keep this in mind when short-term corrections create doubt in your minds, forcing you to sell at the lows.

 

Short-Term Outlook

We are in a correction that began at $2454 in Gold and $32.75 in Silver, and it has room to fall further before it finally hits bottom. Why is this happening, given all the forementioned supporting factors?

The Banks have reached their highest net short positions in the metals in years. They need the market to go down to cover their shorts at a profit.

Sentiment reached extreme euphoric levels and now it is correcting, as it always does.

Once the Banks have slashed their short positions and sentiment is neutral—or better, bearish—Gold and Silver will take off again.

In the meantime, these are the levels I am focusing on for the bottom in precious metals.

 

GOLD Weekly

gold chart prices

I have been citing the weekly chart for weeks now because it was clearly bearish. The RSI and both MACDs reached beyond extreme levels and were clearly signaling a correction was imminent, potentially a big one.

Support is currently at $2285 on the upper purple trendline. If that is broken, $2250 is the next critical support level. Below there and it could fall to $2150 or even slightly below $2000. 

 

Daily Chart

gold chart prices

The daily chart shows the same levels of support, but it also shows that the 200-day moving average is moving up towards $2150. This confluence of support makes it unlikely that this level is broken. I consider this the worst-case scenario for Gold. 

However, if you look back to the rally from 2008-2011, the Gold price never touched the 200-day average until it had already topped in 2011, so it may not reach $2150 this time around. This is why I am focusing on $2250 in particular to hold and begin the next rally in this bull market.

 

SILVER Weekly

gold chart prices

Like Gold, Silver reached extreme overbought conditions and euphoric sentiment at the peak of $32.75 and all of the momentum indicators are turning down. $26-$26.40 are my primary support levels. Ahead of that are $28.50 and $28.00.

 

CONCLUSION

The correction in the metals continues and the risk is still down. But we are far closer to the bottom than we are to the peak of the next rally. I am still expecting higher highs in both Gold and Silver once this reversal is done. This is a garden variety pullback in a bull market following a big rally. Focus on the big picture.

 

 

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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