by Craig Hemke, Sprott Money:
The final leg of the Fed’s stool was kicked out from under them Tuesday morning when the latest JOLTS job openings report showed a dramatic slowdown in the U.S. labor market. It’s now not a question of “if” the Fed will cut rates, it’s a matter of “when”.
How many times have you heard Fed chairman Jerry Powell describe the U.S. labor market as “robust” or “firm”? Just go back to his latest, post-FOMC press conference, and you’ll find several mentions of this alleged signal of economic strength.
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However, employment is always a lagging indicator and often the final economic datapoint to collapse prior to the start of a recession. Will Tuesday’s JOLTS data finally make it clear for all to see that the U.S. economy is in contraction?
And it is this eventual recession that has been driving our forecasts for 2023 and beyond. In early January, our 2023 “macrocast” projected a demonstrable economic slowdown and recession by summer. As we begin April, it sure looks like we are right on track:
So what does this mean for COMEX precious metal prices? Well, first consider the primary inputs that drive the HFT algos and hedge funds to either buy or sell the futures contracts. With expectations of future fed funds rate CUTS now taking hold, the bond market is rallying, with yield on the U.S. 10-year note falling from a March 1 high of 4.09% to Tuesday’s 3.35%.
And the U.S. Dollar Index is near its recent lows too. After peaking near 114 late in 2022, it’s now back under 102.
As you’d expect through all of this, COMEX gold and silver prices are higher. The Big Question becomes: Is this The Breakout?
In that annual forecast linked above, we noted that COMEX gold had traded mostly sideways in a consolidation flag since late 2020. It was noted that we should expect this trend to continue “through the first third or half of 2023” before a recognizable breakout occurs. As of Tuesday, April 4, the breakout appears to be drawing near.
However, as also noted in this year’s macrocast, the timing of the breakout doesn’t really matter as long as you are positioned ahead of the event. Once price moves above $2100, the initial target becomes $2300.
COMEX silver is struggling to keep up with “big brother” gold. It, too, is moving higher, but as you can see below, it is still far from breaking out to the upside. This will happen eventually, and the Commitment of Traders positioning is supportive of continued gains. The macrocast price guess for this year remains $38, and that’s a LONG way from here, which means there’s still time to position yourself properly.
In summary, breakout rallies in COMEX gold and silver are coming in 2023. They may have started already or they may still be a few weeks away. The timing, however, only matters if you’re not correctly positioned before the event. As such, look around. Think for yourself and study history. Draw your own conclusions about where this is all headed and then prepare accordingly.
