Gold continues to be resilient and the pullback I've been anticipating seems to be in the cards.
For the year, gold is trading up over 15%.
Technically, gold needs to close above last month's high of $1552 and $1560 in NY Gold Nearest Futures in order to continue higher.
On the downside, as long as we hold $1,385 on a closing - not intraday - basis then the mid-term march higher remains intact.
Silver, meanwhile, has shown life as gold's more volatile cousin. What it has failed to do is break out.
Unlike gold, which has broken out of its sideways pattern, silver needs to break $20.57/oz. in order to convince me the rally is sustainable.
I wrote about the Fed intervention earlier this month so I won't rehash those details.
I will repeat the main takeaways. There is serious dissent among all central bank committees about what course of action is best. Spoiler alert, they're going to continue to lower rates.
Had the Fed not intervened there would have been a serious dislocation. Short-term rates spiking to 10% is all the proof you need.
Lastly, there is a global shortage of dollars.
That is why I've said for years that the U.S. is the cleanest dirty shirt in the laundry basket. It's also why I've explained repeatedly that, in order for gold's move to be sustainable, it needs to be able to rise alongside the dollar.
Notice the dollar index is flirting with triple digits?
The pullback is healthy. So far so good.
We could see sub-$1,400 gold prices and that would provide the energy we need to get to $1,600-plus by year-end.
What's not so good is that quantitative tightening has cut the amount of dollar reserves and that became painfully clear with the spike in short-term rates.
Foreign holdings of U.S. debt increased from an estimated $6.2 trillion to $6.6 trillion in the past year (July 2018 to July 2019).
Expect lower rates. Expect one more cut this year and possibly one in early 2020. As the election nears, the Fed will only cut if it absolutely has to.
Overseas, the ECB has a new incoming president, Ms. Christine Lagarde, and I don't think it'll be long before she presses the gas in a desperate effort to avoid the unavoidable. Tick, tock... It's not going to work.
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Expect the moves in the precious metals space to become more exaggerated.
Expect volatility - as I've told you before - to become a permanent part of the investment landscape.
We have a president here in the U.S. set on finding out how much it'll take to get impeached.
We have two parties running this country - neither of which are fit - largely to the benefit and enrichment of themselves.
We have an escalation in the Middle East that seems to be headed in one direction and it's not a peaceful one.
Throw in trade wars, the discord in Europe, discord among the Fed committee here in the U.S., and an election year in 2020, and the table is set.
My advice? Keep some powder dry. Let this pullback in the gold price settle, make a list of your favorite juniors, wait for tax-loss selling to kick in, and tidy up your positions before the next leg up.
To your wealth,
Gerardo Del RealEditor, Junior Mining Monthly and Junior Mining Trader.
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.