Gold Forecast: Temporary Correction Followed by a Breakout Above $2000

After last week's employment report, markets are now pricing in 0.25% rate hikes in March, May, and potentially June.

Stocks and risk assets continue to fight the Fed, refusing to believe Powell will get rates to 5.00%+ and keep them there all year.

A near-term breakout in 2-year Treasury yields could put temporary downside pressure on metals and miners.

After a brief pullback, we expect gold to rally and breakout above $2000 in the second or third quarter. 

Rate Hikes

The odds for a 0.25% rate hike in March are at 100%, and another 0.25% bump in May jumped to 78% over the past 30 days. The market is now pricing in June at 34.4%. We can expect Fed funds to reach a minimum of 5.00% to 5.25% in the second quarter of 2023.

source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?r...

2-Year Treasury Yield

The 2-year Treasury yield broke above the recent consolidation pattern and could extend to new highs above 4.80% in the coming weeks. Rising short-term rates are a short-term headwind to gold.

Yield Curve Update

Below is the 10-year minus 2-year Treasury rates (yield curve) from the Federal Reserve Bank of St. Louis. A recession (gray vertical lines) is virtually guaranteed when it drops below zero. The current reading slipped below zero last July. Note: The last four recessions (red arrows) started AFTER the yield curve normalized back above zero.

Take Away: With a current reading of -0.82, I think we are several months away from the official onset of a recession. The bad stuff starts showing up in the economy AFTER the yield curve rises back above zero. I won't get excited about a lasting bottom in the stock market until the yield curve normalizes to at least +1.00%.

Our Gold Cycle Indicator is in Neutral territory at 178.

-GOLD- Gold rallied about 22% off the November low, and prices are correcting. The depth and duration of this correction are anyone's guess. Some corrections are sharp and fast - while others grind sideways to lower for several weeks. The first indication of a possible bottom will be a swing low.

-SILVER- Silver rallied over 40% off the September low, and prices are correcting. I'd like to see a cycle bottom between $21.00 and $22.00 in the coming days/weeks.

-GDX- Miners were unable to breakout above $33.00 on their first attempt, and prices are correcting. To maintain pattern symmetry, I'd like to see prices hold support around $29.00. A breakdown below $29.00 would encourage a retest of the 200-day MA.

Conclusion

We believe gold formed a major bottom in 2022, and prices are in the first phase of a multi-wave advance towards $3000 by mid-2024. The next 4-year cycle peak in gold should arrive ahead of the 2024 Presidential elections. 

AG Thorson is a registered CMT and an expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more charts and regular updates, please visit here.

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