In our annual forecast printed in January, we tried to warn everyone that although the COMEX precious metals were set up for a very strong 2023, the first half of the year would include several false starts and fakeouts. As if right on schedule, you just got your first one.
I suppose a link to that 2023 "macrocast" would be a good place to start this week. Again, this was published back on January 5, and it lays out a rather bullish case for the COMEX precious metals beginning in the second half of the year.
For the purpose of this post, this section is the most relevant:
The key to this year's forecast is remembering how the COMEX metals traded in prior years where a Fed monetary change was pending. In both 2010 and 2019, the prices of COMEX gold and silver traded mostly sideways through the first half of both years before exploding higher later as the Fed reversed course and began cutting rates and/or renewed QE.
The same will be true this year. Though recent economic data suggest that this eventual "pause and pivot" may be delayed until late summer or autumn, for long-term metal investors, the timing is meaningless. The only thing that matters is that the Fed WILL soon alter course back toward easing and they will do so at/near the first signs of economic stagnation/contraction. They made the same decisions in 2010 and 2019, and they will do so again in 2023.
Between now and then, however, we must expect more volatility and fakeouts, similar to what we just experienced. COMEX digital gold charged out of the gates in 2023 and rallied $135 in five weeks. The recent spate of economic data, higher interest rates, and a rising dollar index has driven it right back down, and it is now up just $5 on the year as I type.
If the bureaucrats and bean counters at the CFTC weren't openly derelict in their duties to provide timely market data, I'm certain we'd be seeing the signs of a classic "Spec Wash & Rinse" on the weekly Commitment of Traders reports too.
On the bright side, COMEX gold continues to outperform relative to what is going on in other markets. Yes, it's now up just $5 year-to-date, but that's against a backdrop of "longer for higher" interest rate expectations, February's 50 basis point rise in the U.S. 10-year note rate, and a 3% bounce in the U.S. dollar index.
Most importantly, if you remove the day-to-day noise and focus instead upon the longer-term charts, you'll find that COMEX gold remains bullishly positioned for the rally that is to come later this year and into next with an initial price target of at least $2300/ounce.
On the weekly chart, note that COMEX gold is still consolidating and flagging the gains it accomplished back in 2019 and 2020, despite the fact that the dollar has soared as short-term interest rates have risen by over 400 basis points!
On the monthly chart, you can plainly see where COMEX gold remains poised to break higher. All it needs is the same old catalyst that drove price from $700 to $1900 in the period 2009-2011 and from $1050 to $2050 in the period 2019-2020. And what's that catalyst? The eventual Fed pause and pivot to easing.
In conclusion, what you just experienced was simply the first Spec washout and price plunge of 2023. It won't be the last. However, if you simply take time to consider recent history, you can feel safe in knowing that precious metal prices will finally break higher later this year in a rally that will once again catch many on the sidelines and unprepared.
About the author
Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.