The trend is your friend until it isn’t.
The rate cut of 50 basis points last week signaled the end of the tightening cycle. Several Fed members have forecast two more rate cuts this year. History shows that when the Fed starts cutting interest rates, it benefits Gold and Silver.
What happens when Quantitative Tightening, or QT, ends? What happens when the Fed reverts to QE?
Weakness in the dollar continues, which also supports the metals.
With this backdrop, it is no wonder that the trend in the metals, especially in Gold, has been more or less straight up for a year now.
Potential Corrections in the Gold Rally
However, nothing goes up in a straight line forever. There will be corrections along the way. This rally since October 2023 is getting long in the tooth. However, that doesn’t rule out a blow-off top to circa $3000 first.
Negative divergences are piling up across multiple timeframes.
It is obvious that sentiment is extremely bullish, which is bearish.
The Bullion Banks have a new record net short position of 258k contracts since records began in 2006. Meanwhile, the money Managers, aka Hedge Funds, now have their biggest long position since “March 2020”. It doesn’t matter until it does.
DXY Rebound and its Implications for Gold and Silver
The DXY is staging a rebound in the short term, but I still believe it has a date with 94-92. That said, what happens when the DXY rallies from that low?
In summary, I recommend you respect the trend until it breaks down. A great way to do this is to use trailing stops so that you can continue to participate in the move upwards while protecting the majority of your gains. You can always jump back in if it turns out to be a fake breakdown.
Long-Term Outlook for Gold and Silver Prices
Alternatively, just buy the physical metals and stick them in a drawer to gather dust. One thing is for sure, in my opinion: Gold and Silver are going much higher in the next few years and likely beyond. The only trigger that could cause a sharp correction is a stock market crash, and that too is a ‘seeing is believing’ event. It’s not an if but a when. But even when that happens, I expect it to be brief and a final great buying opportunity.
Silver has been lagging Gold for quite some time, but it will ultimately outperform Gold, imho. As with its big brother, I recommend you use trailing stops in Silver too.
Conclusion: Respect the Trend and Protect Your Gains
Despite the clouds on the horizon following a long rally, respect the trend until it breaks down. Use trailing stops to protect your gains and stay in this bull market as it continues to rise. Short-term pullbacks and a stock market crash aside, Gold and Silver have a long way to go yet. We could still hit $3000 before a big correction occurs. Silver is likely to go even higher in percentage terms.
Source: sprottmoney
