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Same Song, Third Verse

The year 2022 has begun to draw to a close and we can begin to look forward to 2023. What will the year ahead hold for precious metals investors? Well, it's often said that history doesn't repeat but it rhymes and that will be the case in 2023.

Much of what you've seen the past six weeks in the precious metals is what we expected to occur when we wrote our annual forecast back in January. It has just been delayed by a few months. The war in Ukraine impeded The Fed's rate hike schedule and, subsequently, the entire calendar was pushed back. But now here we are so, what's next?

Of course we'll write about this in more detail in our 2023 macrocast next month. For now, though, the theory of what to expect in 2023 has crystalized over the past few weeks. And what's that theory? That 2023 will be like 2019 which, in turn, was like 2010. Please allow me to explain.

As 2010 began, the investment world was convinced that the new monetary policy of "quantitative easing" was a one-off. QE had been implemented by Ben Bernanke in response to a once-in-a-generation financial crisis and would never be seen again. We now know, of course, that QE has become a way of life for central bankers and that the initiation of these programs in March of 2009 was a paradigm-changing event.

However, no one knew that in January of 2010. Instead, it was expected that The Fed's bond buying would end with QE1 and that interest rates would soon "normalize". The COMEX precious metals played along for most of the year but, once QE2 began to be expected by August of that year, gold prices started to shoot higher. See the 2010 price chart below:


Fast forward to January 2019. As that year began, the vast majority of pundits and 8-figure Wall Street economists were projecting continued rate hikes and higher interest rates. We knew this was incorrect and wrote about it with our annual forecast. We even called it "2010 + 9" in recognition that the year ahead was going to look a lot like 2010 with rate CUTS, not rate hikes.

And like 2010, the COMEX precious metals played along. The first half of the year saw mostly sideways price action. However, once The Fed starting cutting the fed funds rate in June, the action in the metals got pretty interesting.


So now, here we are again. A new year is fast approaching and many of those same pundits and 8-figure Wall Street economists are again projecting higher interest rates in the year ahead. For example, as 2018 ended, Jan Hatzius of Goldman Sachs was projecting three additional rate hikes in 2019 and a 10-year treasury yield of 4-5%. The Fed was actually cutting rates by June of that year and the 10-year treasury yield fell to 1.50% by year end.


Despite being dead wrong in 2019, old Jan has continued to collect his massive paychecks while failing to learn anything. As 2022 ends, here he is again projecting higher interest rates in the year ahead:

And he'll be wrong AGAIN. Instead, here's what you should expect.

As in 2010 and 2019, the U.S. economy will begin demonstrably slowing in Q1 2023. A significant recession is brewing as evidenced by the sharply contracting PMIs and inverted yield curve. The Fed acted too late to control inflation (the delay driven, in part, by the unexpected war in Ukraine) and then moved too aggressively. This will become apparent to all by mid-2023 and rate CUTS will follow, just as they did in 2010 and 2019.

How will COMEX precious metal prices respond? Just as they did in 2010 and 2019. Expect prices to play along with the uncertainty through the first few months of the year. Now that prices have moved back into their consolidation ranges of $1700-2000 in gold and $22-28 in silver, they're likely to stay here through Q1. But then the fun begins as Fed rate cuts begin to be anticipated.

How far will prices then rally? Well, the period 2010-2011 saw a 40% rally in COMEX gold and the period 2019-2020 saw the same. A similar move in 2023-2024 would target $2400, at a minimum.


We'll refine all of this and add more detail when we publish our 2023 macrocast next month. For now, though, go enjoy your holidays. Take some time to relax and catch your breath. But fortune favors the bold and, if 2023 does indeed play out like 2010 and 2019, you're going to need to be ready for a very interesting year ahead.

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