Why Gold and Silver Prices Will Go Much Higher

Gold has been doing relatively well recently, but Silver and the miners have been under a lot of pressure. Silver has fallen from $32.75 on May 20 to a low of $26.50 on Aug. 8. That’s a drop of 19% in less than three months. GDX has suffered a 14% drop by comparison. Gold is the standout, approaching new record highs. Why the big difference in performance? I believe that Chinese buyers and central banks in general have been big purchasers of Gold, and they continue to be, driving the Gold price higher. There is a meaningful difference in the price in Shanghai relative to the lower price on the COMEX, a perfect arbitrage opportunity. Why buy physical Gold in Shanghai when you can buy it in New York at a lower price? That said, I believe Silver and the miners are about to play catch up.

Potential Catalysts for a Metals Rally

There are so many potential catalysts for metals and miners in the coming months:

1. A Fed rate cut in September. The first in years. It may be already priced in or considered a pivotal end to tight money by the Fed.

2. The risk of a stock market crash. Seeing is believing at this point, but I consider it inevitable—a question of when, not if. When that happens, based on similar crashes or corrections in the past, we could get a sharp but brief drop in both the metals and miners. Then the Fed rides to the rescue ‘again’ with more rate cuts, the end of QT, and ultimately a return to QE and Yield Curve Control, i.e., capping bond yields. The dollar would come under serious pressure in that scenario. However, in 2020, 2018, 2008, and 2000, when the market was flooded with liquidity, the metals and miners were the greatest beneficiaries. There is no reason to expect the next instalment to be any different.

3. There are two major wars happening in the world today that could escalate and turn into World War 3. War is great for Gold and Silver, as we saw when Russia invaded Ukraine and Hamas attacked Israel, and it’s nothing but a disaster for everything else.

4. The BRICS countries are considering rolling out a new BRICS’ currency called the unit. The plan is to back this new currency with 40% Gold. This could be announced as soon as next month. This would be problematic for the dollar, to say the least, but it would supercharge Gold and by derivation Silver and the miners also.

5. Fiscal spending and deficits. Fiscal spending and deficits are unlikely to contract going into the U.S. election in November. Combined with Fed cuts, this would be extremely inflationary, clearly negative for the dollar, and only further benefit Gold and Silver.

Economic Indicators Suggest Trouble Ahead

Fed Chair Powell consistently states that the economy is strong. Looking under the hood at various economic indicators, reality looks very different:

• 750k revision downward in employment numbers for 2023.
• Credit card delinquencies at 12Y high.
• Credit card rates well over 20%, a record high!
• Credit card debt over $1 trillion.
• Personal savings rate at less than 4%, lowest since 2008.
• Homeowners turning to HELOCs to keep their heads above water.
• Auto loan defaults are soaring.
• Car sales are down five months in a row on a YoY basis and seven months on a quarterly basis.
• Mortgage rates are coming down, but they remain high for most. Expect them to turn up again when the Fed cuts rates.
• Existing home sales have been falling since September ’21, three years ago.
• New home sales are also falling—and fast. The trend is sharply down.
• Median sales price peak at $443k at the end of 2022, now down 7% from that peak.
• Home prices have been consistently falling on average nationwide since Q2 2023. The last time we saw this was in 2019-2020 and 2006-2009, “The Big Short”.
• Foreclosures are at 3% but are expected to rise.
• Homebuilder confidence levels have been sliding for months, typically an early warning sign.
• Worst traffic numbers since 2020 and 2008…few interested in buying a new home.
• Seeing a surge in Commercial property foreclosures, up 13% in Q2 alone.
• Concerns are rising with respect to the banks holding the biggest portfolios of commercial and residential properties—potentially massive losses in write-offs. Values of the properties nowhere near the original loan amounts. Shades of 2007 again.
• Corporate bankruptcies are soaring. Most in the first half of the year since 2010, and most were in the consumer discretionary sector.
• Increasing jobless claims flash recession signs.

Stagflation: The Perfect Storm for Gold and Silver Prices

Simply stated, the consumer is tapped out. And consumption is at least 70% of GDP. The economy is heading towards recession…if it is not already there.

Combine rising inflation with recession and you have stagflation. The last major bout of stagflation occurred in the 1970s. From 1974 to 1980, Gold rose 24 times, Silver 36 times. If you had 100,000 dollars and bought either Gold or Silver, you would have had $2.4 mln or $3.6 mln in the space of six years. It’s safe to say that stagflation is like throwing gasoline on the fire with respect to Gold and Silver.

Current Market Dynamics: Short Positions and Chart Analysis

So, what is the hold-up, you might ask? Why aren’t the metals and miners shooting higher? Gold has been doing very well, and I expect it to continue to do so. However, the only negative I can point to is the massive short position the Bullion Banks have in Silver on the COMEX:

Although they have begun cutting their net short position, it is still the biggest net short position since July 2016, eight years ago, when Gold and Silver fell hard.

The Banks have a similar massive short position in Gold, but I believe this is offset by huge Gold purchases from the East, led by China.

By contrast, Silver is a much smaller market and therefore easier to suppress. As for the miners, they are highly correlated to Silver’s performance. The strong performance in Gold has helped Gold miners boost their performance relative to Silver.

Technical Analysis: Silver's Path Forward

With all of that said, let me show you why I believe Silver is going to bottom (or has already bottomed) and is going higher, based on the weekly chart:

• There is a massive wedge pattern going back to 2020. Silver broke out to the upside in early April. Then it peaked on May 20.
• Now it is undergoing an A-B-C correction. This targets $25.50 for the bottom of wave C / 2.
• The upper trendline in red also shows support at ~$25.50.
• The 50-week moving average (like the 200-day moving average) is slightly higher at $25.75.
• This provides a powerful confluence of support at this level.
• If $25.50 is broken, then the lower green trendline comes into play. This is the worst-case scenario and signals support between $22.50-$23.00.

Either way, following a near 20% decline, Silver is approaching major support levels that could provide the low we have been waiting for. What happens next is wave 3, the money wave, which could take Silver to $40+.

In fact, Silver may even have already bottomed at $26.50.

Combined with the aforementioned catalysts for a massive rally in Silver—joined by miners and led by Gold to this point—far from being bearish, the outlook for Silver looks extremely positive.

There are only two caveats: A stock market crash, and the massive net short position on the part of the Bullion Banks in Silver.