Nothing goes up in a straight line...
by David Brady via Sprott Money
Fed Chair Powell said a lot of things today. It was the most verbose speech I've heard from him. He said something for everyone, and my simple summary is as follows: Powell confirmed that interest rates will continue to rise but at a slower pace, starting with 50 basis points in December. This confirmed the pivot back on November 3. He also suggested that the terminal Fed Funds rate would be 5%, 1% higher from where we are today. More importantly, this provided an end point for this tightening cycle, even if rates remain high for some time to come, i.e., no rate cuts anytime soon. In a nutshell, the Fed will raise 0.50% twice or 0.50% and 0.25% twice, and then keep the Fed Funds rate at 5%. Markets were risk-on except for the dollar. Nothing new since November 3, and now the path higher is wide open for monetary metals and miners. But nothing goes up in a straight line.
Gold held support at ~1735, and with some help from the Fed recently and a weaker dollar, it is on the verge of hitting its highest level since August. However, it is close to becoming extreme overbought, which suggests the rally is running out of steam and we're due a pullback. That said, I would not be surprised to see a negatively divergent higher high first.
Should Gold continue higher, it has the 200-DMA and the prior high of 1824 to contend with. Ideally, Gold takes out those two resistance levels, it becomes extreme bullish and overbought, and when everyone is looking up to 1900, down it goes again to the 1700s prior to take off.
Silver is just above 22.50 in after hours trading this Wednesday night. This is its highest level since June. Like Gold, I would ideally like to see a negatively divergent higher high around 22.75 or higher before a pullback to at least the low 21s. This would set up Silver nicely for the next leg up.
GDX looks just like Gold and Silver. Momentum is waning, especially in the MACDs, and the RSI is close to extreme overbought. That said, the ideal scenario would be a break above the 200-DMA to perhaps 31 or 32, and then everyone gets overexcited. Then down we go before heading even higher thereafter.
In order to avoid any further repetition, SILJ is also running out of steam here but has one last hurrah to the upside, above the 200-DMA, before heading south like the rest of the sector. My primary forecast is for a pullback that is followed by a rally to higher highs-potentially much, much higher.
Last but not least, the DXY has been a driving factor in the resurgence of the monetary metals and miners. Ever since the Fed pivoted at the November 3 FOMC, its dump has been spectacular. Ten big figures inside a month. Incredible. I don't rule out further downside in the short-term, supporting higher prices for the metals and miners, before a big rebound to as much as 109-110 and the pullbacks I am forecasting for Gold, Silver, and the miners.
In summary, DXY to go a little lower, aided by Powell's dovish comments today. Then when everyone is bullish the metals and miners and bearish the DXY, the big reversal in both follows: DXY higher, Gold and the rest lower.