Pullback or Not, Record Highs Ahead in Gold

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Fundamentals are clearly driving the bus in Gold and Silver. Ever since the Fed announced its plan to reduce rate hikes at the FOMC meeting on November 2^nd, Gold has gone more or less straight up from 1618 and is on the verge of testing the record high of 2089 in August 2020. Employment and inflation data influence Fed policy, and they have contributed to the rally as jobless claims rise and both the CPI and PPI continue to fall. The recent mini-banking crisis, which is just on hiatus right now, also sent Gold soaring on March 9, when Silicon Valley Bank got into trouble. This also affects Fed policy and therefore Gold.

Now the Fed is planning on just one more 25bp hike on May 3. They’re basically done tightening. Even if they do hike, they will likely pause given the recent data and less lending by the banks in response to the banking crisis. A pause in Fed policy would signal risk on for everything but the dollar over the next few months.

Meanwhile, Gold can remain overbought and bullish for quite some time. The essence of a bull market:

That said, following lower CPI and PPI data, in some cases much lower, Gold is now attempting to test 2089 and Silver appears unstoppable, as do the miners. This comes after massive rallies in each, extreme overbought and bullish signals. The risk is that we do get a pullback at some point. But seeing is believing given that a pause by the Fed appears almost inevitable three weeks from now. This is the time to look at the longer-dated charts, such as the weekly and monthly.

The weekly chart is extreme overbought per the RSI. It’s now at 72. The MACD Histogram is showing that the recent highs are negatively divergent. But look at the MACD Line at the bottom. It’s still rising and not even close to its peak in August 2020 when Gold topped out at 2089. This means that there is still plenty of room to the upside, regardless of any short-term reversals.

The monthly chart shows the long-term trend is up, confirmed by higher lows and higher highs. But it is negatively divergent on both the RSI and MACD Histogram. Now look at the MACD Line. It’s just started to turn up, and based on the 2020 peak—and especially the 2011 top—it has a LONG way to go before it tops out. Note that the MACD Line is a better long-term indicator than both the RSI and the MACD Histogram, which tend to be more focused on the near-term. What this signals is that Gold has a long way to go on the upside, in spite of any pullbacks along the way. Negative divergences can be broken.

In summary, I don’t know if we are going to get a pullback or not. Everything but the fundamentals suggests we should. But the risk is that Gold, Silver, and the miners just keep rising, perhaps even parabolically. In order to avoid missing out while at the same time minimizing your losses if we do get a pullback, consider buying “some”.

A few months ago, I suggested that the best way to keep physical Gold and Silver out of the hands of the masses was not suppression of the price via the selling of futures contracts on the COMEX, and not confiscation either, but allowing it to go much higher in price, thereby making the physical metals too expensive for the majority of people to buy. Perhaps that is what is happening now.