Technical Update on Gold & Silver

Although the Fed met expectations by cutting rates on Wednesday, it roiled the markets by signaling a slower pace of rate cuts in the future.

Since the election, financial markets have been marked by heightened volatility and uncertainty as they absorb news about President-elect Donald Trump’s cabinet picks and potential economic policies.

Adding to the complexity are geopolitical tensions and ongoing speculation about Fed policy.

On Wednesday and into Thursday, markets across the board—from stocks and commodities to cryptocurrencies—experienced sharp sell-offs after the Fed adopted a more hawkish stance on interest rate cuts for 2025, citing persistently entrenched inflation.

Gold dropped 2.3% on Wednesday before recovering slightly on Thursday. This movement isn’t particularly surprising, as gold has been trading within a range since the U.S. presidential election, essentially oscillating within its established boundaries.

There’s no cause for concern, as gold’s overall uptrend remains intact. Over the past year, gold has demonstrated a healthy and orderly growth pattern, steadily climbing through a series of consolidation phases or trading ranges in a stair-step manner.

To confirm that this current consolidation phase has ended, I’m watching for a high-volume close above the $2,800 resistance level in COMEX futures.

To further validate that gold’s uptrend remains intact, examining its performance in euros can be insightful. Pricing gold in euros removes the impact of U.S. dollar fluctuations, offering a clearer perspective on its intrinsic strength.

The chart confirms that gold is trading within a range of €2,400 to €2,600, which is an encouraging sign. A decisive close above the €2,600 resistance level will signal that gold’s bull market is ready to continue marching higher.

While gold has shown remarkable staying power this year, silver has faced challenges since the spring, which I’ll explore in more detail shortly.

Silver has repeatedly attempted to break through the critical $32 to $33 resistance zone, only to encounter a significant flood of paper silver from bullion banks intent on capping its gains.

Unlike gold, silver is a relatively small and illiquid market, making it easier for bullion banks to manipulate its price. While they attempt to influence gold as well, their efforts are less effective due to the gold market’s larger size and the strong and steady demand from foreign central banks actively accumulating physical gold. In contrast, most central banks don’t accumulate or deal in silver.

A glance at silver's daily chart reveals that it has fallen below both the uptrend line established since March and the downtrend line that has been in place since May.

At first glance, this breakdown appears concerning, primarily for traders or those using leverage (as opposed to stackers), as it signals a need for caution. However, it’s worth noting that false breakdowns can and do occur, and there’s reason to suspect this move may be tied to end-of-year selling.

I’ll be watching closely to see if silver can reclaim those key levels, which would signal a potential reversal and renewed strength.

The longer-term silver chart highlights a strong support cluster in the $28 to $30 zone. I’ll be watching closely to see if silver can establish a solid base at this level and stage a rebound.

I’ve developed an indicator to help confirm price movements in silver, called the Synthetic Silver Price Index (SSPI). This index combines the average prices of copper and gold, with copper adjusted by a factor of 540 to prevent gold from disproportionately influencing the index.

The SSPI closely mirrors silver’s price movement, even though silver itself is not an input. At the moment, the SSPI is testing its uptrend line that formed since February.

In order for silver’s rally to continue, I would like to see the SSPI bounce off of this uptrend line and then close convincingly above the 2,600 to 2,640 resistance zone.

As I’ve explained in the past, silver’s price action is basically a hybrid between that of gold and copper, which is why I developed the SSPI as a helpful indicator for silver.

Since May, the SSPI has struggled primarily due to weakness in copper prices, reinforcing my belief that copper’s soggy recent performance has been an important factor holding silver back.

For silver to gain meaningful bullish traction, a strong rally in copper is likely necessary. I want to see if copper can rally off its key $4 support level that is just beneath it.

One of the key reasons commodities—including gold and silver—have faced recent challenges is the relentless surge of the U.S. dollar against other currencies since early October, as illustrated by the chart of the U.S. Dollar Index (DXY).

Following the Fed's hawkish comments, the DXY rallied significantly, closing above the critical 106 to 107 resistance zone that has been forming since early 2023.

The DXY and commodities generally share an inverse relationship. As long as the DXY remains above this level, its uptrend is intact, which poses a headwind for commodities prices. However, gold has demonstrated notable resilience in the face of dollar strength, as it sometimes does during such conditions.

The longer-term U.S. Dollar Index puts the recent breakout into perspective:

While numerous external factors influence the price of gold and silver—including the U.S. dollar, interest rates, central bank purchases, and even copper (in the case of silver)—perhaps the most significant influence comes from the actions of bullion banks.

These banks, often acting on behalf of central banks like the U.S. Federal Reserve, work diligently to suppress the prices of gold and silver to maintain the perceived strength of fiat currencies in comparison.

Understanding how these banks suppress the prices of gold and silver reveals both bad news and good news.

The good news is that this price suppression keeps physical gold and silver priced significantly below their fair value in an organic, unmanipulated market.

As a result, these metals are like a beach ball held underwater—sooner or later, they’re bound to surge explosively higher. For patient gold and silver stackers, this represents a remarkable opportunity to accumulate precious metals at discounted prices ahead of that eventual breakout.

One of the primary tactics bullion banks use to suppress the prices of gold and silver is flooding the market with massive amounts of “paper” gold and silver via naked shorting in the futures market.

These banks aren't selling actual physical gold or silver—they don’t possess the quantities required. Instead, they issue paper futures contracts, creating large and growing short positions with each price slam.

However, these short positions are not without consequences; the banks are ultimately obligated to eventually “cover” them by buying back the contracts, which should trigger a significant upward surge in prices.

Paper gold and silver has proven to be a powerful tool for bullion banks seeking to suppress the prices of these precious metals.

Paper silver includes futures, options, forwards, swaps, CFDs, and exchange-traded funds. Currently, it is estimated that there are an astonishing 133 ounces of paper gold for every ounce of physical gold, as illustrated in the chart below.

This imbalance poses several concerns, chief among them the heightened risk of a future run on physical gold. Such a scenario could see the price of scarce physical gold soar while the value of paper gold plummets, creating a significant market shock.

The ratio of paper silver to physical silver is even more extreme, standing at 406 to 1.

While the manipulation of the precious metals market and the proliferation of "ersatz" paper gold and silver are undeniably upsetting, they also present a tremendous opportunity for those with the foresight and patience to accumulate scarce physical gold and silver at artificially low prices.

Viewed through this lens, the wild price fluctuations become less concerning, as it’s primarily the paper market that’s fluctuating—not the intrinsic value of the metals themselves.

I foresee gold surpassing $15,000 per ounce and silver reaching several hundred dollars per ounce as we approach a financial reset, where the current unsustainable financial and monetary system unravels.

A key indicator of gold and silver's bright future is the long-term trajectory of the U.S. money supply, which has been consistently rising with no signs of slowing.

As we enter this monetary endgame, the money supply is going to skyrocket further, driven by the government and central bank running the printing presses at full speed just to cover mounting obligations.

One of those mounting obligations is the U.S. national debt burden, which keeps rising with every recession and national emergency.

Since the 2020 pandemic, the combination of America’s surging national debt and rising interest rates has more than doubled annual interest payments to over $1.1 trillion.

Another critical factor is the massive U.S. stock market bubble, clearly evident in the total U.S. stock market capitalization-to-GDP ratio. Like all bubbles, this one is bound to burst.

When it does, the Fed will pull out all the stops to prop it up—slashing interest rates to zero or even negative levels and printing trillions more dollars. These actions, while aimed at stabilizing the market, will act as rocket fuel for gold and silver, driving their prices to unprecedented heights.

I didn’t mean to conclude this update on a scary note, but I want to encourage everyone to stay focused on the long-term, big-picture goal of investing in gold and silver.

Short-term fluctuations can be frustrating—believe me, I understand, as a significant portion of my own net worth is tied to precious metals. I see my wealth rise and fall with these market swings.

However, I remain confident and unworried because I consistently keep the long-term bullish case for gold and silver in mind: the unsustainability of our current financial and monetary system.

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