The multi-week correction in precious metals and miners should terminate shortly.
Once completed, we see gold surging above $2100 to new all-time highs.
Precious metals typically rally in presidential election years – 2024 should be no different.
First let’s start with key economic insights ahead of next week’s Fed meeting. Spoiler Alert: Economic data remains hot; we could see fewer rate cuts than projected.
GDP Growth Surpasses Expectations
In the fourth quarter, GDP (preliminary) exhibited robust growth at 3.30%, surpassing the projection of 2.0%.
Jobless Claims on the Rise
Initial jobless claims increased to 214,000, marking a notable uptick from the previous week’s low of 189,000.
Core PCE and Personal Spending
Core PCE came in on target at 0.2% for December while Personal Spending exceeded expectations at 0.7% versus 0.5%.
Challenges in the Labor Market
Analysis of the labor market reveals a significant slowdown in hiring. Jason Cummins, Chief Economist at Brevan Howard, suggests that the unemployment rate could have reached 4.00% if not for a substantial decline in the participation rate.
Freight Rates and Inflation Concerns
Cargo ships in the Red Sea face challenges, with freight rates surging by 120% over the past quarter. The accompanying chart underscores the potential for significant inflation in the next quarter if shipping costs remain elevated.
Inverted Yield Curve Warning
The economy historically avoids a recession IF the Fed promptly halts rate hikes into an inversion. Continuing to hike rates after an inversion leads to a recession 100% of the time, according to economist David Rosenberg. Consequently, the odds of a 2024 downturn remain elevated.
Consumer Impact of High Interest Rates
A University of Michigan study reveals that nearly 70% of respondents attribute their reluctance to buy homes and cars to high interest rates, reminiscent of levels last seen in 1980.
Diminished Future Buying Plans
Consumer spending, constituting around 70% of the economy, may face challenges in 2024. Home and car buying plans are below 1980 levels, indicating a potential impact on the crucial housing sector.
Caution in US Index Futures
Non-dealer positioning in US index futures has reached a bullish extreme. This positioning, opposite of what we saw at the October 2022 low (red arrow), is considered a contrary indicator, signaling caution ahead.
Precious Metals Update
Overview: Metals and miners are completing intermediate cycle lows, and we expect prices to bottom around next week’s Fed announcement.
The Gold Cycle Indicator finished at 84, and we are in minimum cycle bottoming.
GOLD- Gold is consolidating ahead of next Wednesday’s Fed meeting. Prices are yet to complete a swing low. A retest of the 200-day MA remains possible.
SILVER- Silver completed a swing low after testing the $22.00 level. We could see more back-and-forth price action into next week’s Fed decision.
PLATINUM- Platinum lacked upside follow-through, and we need to make another swing low to support a bottom. A retest of $880 remains possible.
GDX- Volatility is increasing ahead of next week’s Fed announcement. Prices made a swing low, and I see the potential for a bottom as long as prices don’t close below the recent $27.60 price gap.
GDXJ- Juniors completed a swing low and need to close above the $34.66 price gap to support a bottom.
SILJ- Silver juniors formed a swing low, and I’d like to see a strong close above $9.15 to support a bottom.
TSLA WEEKLY- Tesla shares are down nearly 14% this week over lackluster earnings and weak guidance. Breaking below $100 would devastate Tesla bulls; I still think that needs to happen to cleanse sentiment properly.
S&P 500 WEEKLY- The weekly MFI is overbought as prices push to new all-time highs. If Tesla is tumbling as the market makes new highs, imagine what might happen if stocks enter a bear market as expected.
Conclusion
The intermediate-degree pullback in metals and miners should terminate as we enter February. Once completed, we see gold surging above $2100 dynamically. Historically, precious metals rally into Q3 of a presidential election year; this year should be no different.
AG Thorson is a registered CMT and an expert in technical analysis. For regular updates, and daily market commentary please visit www.GoldPredict.com.
********
