Gold Price Forecast: A Dangerous Crossroads for Markets
August CPI came in at 0.4%, pushing the odds of a Fed rate hike next week to 85%.
If the Fed hikes rates, expect a bit more downside in precious metals. If they hold steady, the correction is likely over, and prices could shoot higher, especially miners.
In a worst-case scenario, escalating attacks on energy infrastructure in the Middle East could send oil shooting above $120, triggering an October surprise, and broad market selloff.
10-YEAR YIELDS: The 10-year Treasury yield is testing its 2023 high as surging oil prices stoke inflation fears. A sustained breakout above 5.00% could trigger a significant selloff in stocks and other risk assets, potentially extending into October.
WTIC: Crude oil is testing the $100 level as attacks on Saudi oil infrastructure intensify. A Houthi blockade of the Red Sea could send prices surging above $120 in short order. Markets are approaching a dangerous crossroads, with global oil reserves near record lows and limited spare capacity to absorb a major supply shock or contain another sharp spike in prices.
GOLD: Gold is attempting to hold its 50-day EMA, but further downside is likely if the Fed hikes rates next week. Ideal support sits around $4,150, plus or minus $50. The risk of additional downside would increase if oil prices and 10-year Treasury yields continue to spike. In that scenario, gold could briefly dip below $4,000, potentially setting up a secondary October low.
SILVER: Silver could slip back to $60.00, depending on next week’s Fed decision. If the Fed holds rates steady, I would expect an immediate breakout above $70.00. In a worst-case scenario, however, silver could drop to $50.00 in October if spiking Treasury yields trigger a broad market selloff.
PLATINUM: After making a slightly higher high, platinum is now correcting. Progressive closes below the 50-day EMA would favor a pullback toward $1,650 (+/- $50).
GDX: Miners formed a major bottom in July, and I believe they are positioned to significantly outperform gold from here. If the Fed hikes rates next week, I’d look for a pullback toward support around $92.00. If the Fed holds rates steady, however, miners could break out to new highs in Q4.
NEM: Newmont hit fresh highs in August, confirming my view that miners are positioned to outperform gold from here. If the Fed hikes rates next week, we could see Newmont pull back below $120. If the Fed holds rates steady, however, prices would likely rocket to new all-time highs.
GDXJ: Junior gold miners could slip a bit further, perhaps below $120, depending on next week’s Fed decision. Overall, I believe they are well positioned to outperform gold from here and are an excellent buy-the-dip candidate.
SILJ: I think silver juniors could offer the most upside potential over the next three to five years. If you missed our mid-year low, a dip below $30 following a Fed rate hike could present an attractive opportunity to add to positions.
S&P 500: The stock market is vulnerable to a 10%+ correction heading into October if prices break decisively below 7,550 following next week’s Fed meeting.
A broad market selloff driven by surging oil prices and Treasury yields could drag metals and miners lower, pushing them toward our worst-case scenario targets.
BITCOIN: Bitcoin has been forming lower highs, and interim cycle tops roughly every four months. A sustained breakdown below $76,000 would confirm another peak and open the door to a lower low in Q4.
Conclusion
The outlook for precious metals hinges on next week’s central bank decisions. If the Fed hikes rates, we could see a bit more downside. If they hold rates steady, metals could soar as the Fed loses credibility.
In a worst-case scenario, escalating attacks on Gulf state energy infrastructure could send oil above $120. In turn, Treasury yields could spike above 5.00%, triggering a broad market selloff into October, likely dragging metals and miners to their lower alternate targets.
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