Gold $2,600 – Daily Reckoning

The Senate quietly passed a $1.2 trillion funding package on Saturday morning to avert a partial government shutdown.

Just days earlier, Jerome Powell and the Fed soothed jittery investors, declaring that the Fed still intends to cut rates before the end of the year.

Meanwhile, you might have noticed gold and Bitcoin consolidating near their respective all-time highs.

Coincidence?

Probably not.

While you might consider the sharp moves higher in both assets to be no-brainers considering recent events, gold’s resilience in the face of numerous rally-busting pressures is where I want to focus our attention. Crypto and its mind bending rallies might have hogged a majority of the attention recently. But there’s something special brewing in precious metals right now, even though most investors aren’t paying close attention to the sector.

Today, I want you to briefly forget about the stocks-only-go-up rally, the artificial intelligence boom, and the roaring crypto market.

Sure, these are all important market themes. But I want to take a break from the endless noise to dig into what’s happening with gold and other metals right now – and how you should position your portfolio to profit from the next major leg higher.

Let’s begin with the post-Fed reaction and where it might lead us from here…

Fed Chair Jerome Powell is doing his best to keep his options open last week, explaining that while the path forward is still uncertain, the Fed still intends to cut rates before the end of the year.

When, exactly? Well, even he’s not sure. All the so-called experts agree we’re getting cuts in 2024. But maybe not in June. As of early this week, July seems to be the most likely date for the first cut. Unless something unexpected happens, of course.

I suspect inflation data release days will remain relatively volatile as everyone searches for clues as to which way the Fed might be leaning. It’s the watch and wait method in action – another layer of uncertainty to navigate as the first quarter draws to a close.

How did gold react to the continuation of the unofficial data-dependent Fed policy?

While stocks enjoyed a nice bump, gold spiked above $2,200 that evening for the first time ever. And it wasn’t the only metal streaking higher. Silver promptly topped $25 for the first time this year. Dr. Copper also stretched its gains and continues to hold above $4 as it consolidates just below 52-week highs.

These moves bring the possibility of an extended metals rally back into focus following months of choppy action, which have been fraught with the occasional failed breakouts that tend to drive traders crazy.

Yet gold has persevered through it all.

In fact, gold continues to overcome multiple obstacles as it marches into uncharted territory:

A Rising Dollar Fails to Cap the Gold Rally

Gold has exploded off its February lows despite a resurgent dollar.

That’s an impressive feat considering a strong dollar rally has stomped gold not once but twice over extended time frames since early 2022. The first was the dollar’s epic surge during the 2022 bear market. The next was the dollar index’s summer bounce in 2023, which was partly to blame for gold’s ugly slide into the low $1,800s in early October.

The dollar index has been working off its lows since late December. Yet gold has still managed to maintain higher prices. That’s worth noting, especially since gold hasn’t exactly been the recipient of the bulk of the anti-dollar attention lately…

Crypto is Stealing the Narrative

I’ve seen several arguments lately that all go something like this:

Gold is not the preferred anti-inflation, anti-dollar investment vehicle anymore. It’s a dinosaur. The younger investors who would have been “all in” on the gold narrative are now involved in Bitcoin and other cryptocurrencies.

This line of thinking makes sense – and I don’t think it’s completely ridiculous to assume that crypto has stolen some of gold’s shine over the past several years.

But again, gold is steadily consolidating near its highs, even as Bitcoin retakes $70,000 and meme coins capture the imagination of the next generation of speculators.

Sure, Bitcoin moves faster than gold. But momentum works both ways. While Bitcoin’s recent consolidation has featured some wild swings in both directions, gold’s consolidation has been relatively stable. No, it probably won’t generate the massive short-term gains folks have come to expect from crypto. But it’s certainly a more stable dollar hedge, if that’s what you’re looking for…

Gold’s Speculative Sidekicks Can’t Get Ahead

As if a disinterested speculator class wasn’t enough, gold’s more speculative sidekicks – silver and mining stocks – have yet to kick into high gear.

In ideal gold bull market environments, silver should be outperforming. That’s simply not the case right now. In fact, silver is still below its December highs – and well below all-time highs. Meanwhile, gold just posted new all-time highs earlier this month.

Gold miners are beginning to firm up. But they have yet to post a significant change in trend. If precious metals speculators were out in force, we would have seen much more constructive action in these stocks as soon as gold made its initial push toward $2,000 in Q4.

Conditions for this latest gold run are far from perfect. But that hasn’t put the brakes on the rally. That alone tells us that despite some of the recent setbacks, a strong bid under the gold market should help it (eventually) extend higher.

If we assume this consolidation area is a halfway point of gold’s rally off its latest retest of $2,000, I think $2,400 is a reasonable short-term upside target. From there, $2,600 is well within reach over the next several months, which would match my longer-term prediction from mid-December.

Don’t sleep on gold here…