Reality Bites: An Update

Regardless of how unpleasant the past few weeks have been, events are mostly playing out as we forecast back in January. So, with this in mind, it's time for an update.

We've gotten accustomed to writing up an annual forecast each January, and most of the time, these "macrocasts" have worked out pretty well. Our most recent submission was published to TF Metals Report on January 7, 2022, and then at Sprott Money the following week:

• Reality Bites: A Forecast for Precious Metals in 2022 

The central premise of this year's forecast was that the "hawkish" Fed would soon find themselves painted into the same corner in which they got stuck in late 2018. They can talk all they want about higher rates and balance sheet reductions, but once the stock market crashes, economic reality will bite them from behind.

This is how it played out in late 2018, and this was quite obvious how it was going to play out in 2022 as well. We are now all experiencing this process firsthand.

As I type, the stock market as measured by the S&P 500 is down about 15% year-to-date. However, just last Friday, it had a significant technical breakdown, and now, just as in December of 2018, the specter of an even deeper crash looms. My target for the S&P is the 200-week moving average, which can be found all the way down near 3500. Once the index arrives there, the damage and "pain inflicted" will be great enough to prompt Powell Pivot II.

We wrote about this current S&P plunge twice in April. Here's just the most recent link:

• Concern For Stonks, Pt. 2 

As all of this inevitably plays out, what does this mean for the precious metals? Let's start with gold. Of course, no one could have fully predicted the Russian war on Ukraine and the international reaction. The events of February and March led to a price spike in COMEX gold that reached all the way to $2060, but now price is fully $200 lower and back to where we figured it would be through the first third of the year. See this excerpt from our 2022 forecast:

What happens next? COMEX gold will soon make another “higher low”, following the pattern you see on the chart below. From there, it will begin to benefit from a “safe haven bid” as the S&P falls. It will also begin to anticipate the inevitable Powell Pivot II, and all of this will play out over the summer. And then, just as written in January, it will challenge that $2100 level again in the final third of the year.

COMEX silver, on the other hand, is doing its own thing and tracing out its own pattern. As I type this on Tuesday, May 10, it has now fallen SIXTEEN CONSECUTIVE DAYS, and what's remarkable is that this is not yet any sort of record. Instead, the longest losing streak that I can recall was EIGHTEEN days back in May of 2017. Below is a chart from that crazy time.

But in reality, silver is acting just as predictably as COMEX gold. Below is another excerpt from our 2022 forecast. Note that since late last year, we've been concerned that silver would only bottom after a false breakdown and washout low that fills the gap just below $20 on the weekly chart.

And now here we are.

Just as in May of 2017, silver is moving toward a final capitulation, CoT-clearing, washout low. Five years ago, the daily Relative Strength Index hit an extreme oversold level of just 18. As you can see, we're almost back there now. A few more down days and a very brief plunge to just below $20 ought to do it.

So be ready. As challenging and frustrating as the last few weeks have been, you must understand that it's a process—and also something that we've lived through before. And just as the trend and events of the first third of 2022 were predictable, the trends and events of the back two-thirds of 2022 are predictable too.