Metals Dip On Hawkish FED Comments

As August draws to a close, long-term upside momentum continues to build in the precious metals complex.

And even after the FED induced sell-off on Friday afternoon, the prices of Gold, Silver, and Platinum have all posted double-digit gains for the month.

From a technical perspective, the positive price action during August increases the probability of a strong rally into the end of the year.

Physical Gold priced in USD snapped a five-week winning streak and closed 3.2% lower on Friday at $4454.00.

The daily Relative Strength Index (RSI) eased back to 54.60. Initial support is near $4390.00, and resistance is in the $4660 to $4680 range.

Gold denominated in AUD slipped 3.2% lower and finished the week at $6216.00. The daily RSI is showing a neutral reading at 52.00.

Initial support is $6140.00 and resistance is at $6380.00.

Physical Silver priced in USD had a $5.00 trading range and posted an outside reversal lower on Friday. For the week, USD Silver fell 3.5% and closed at $66.50.

The daily RSI is 54.60. Initial support is $65.45, and resistance is in the cluster top formation between $69.70 and $70.00.

Silver denominated in AUD also posted an outside reversal lower on Friday. For the week, AUD Silver slipped 3.6% lower and closed at $92.60.

The daily RSI is 53.00. Initial support is $89.90, and resistance is between $97.60 and $97.80.

NOTE: An outside reversal lower means the Silver price traded higher than the previous day’s high, then reversed and closed below the previous day’s low. See Chart 5.

The Gold versus Silver ratio rose fractionally in favor of Gold last week and closed at 67.05, which means it takes 67.05 ounces of Silver to equal the price of one ounce of Gold.

Physical Platinum snapped a streak of five consecutive weekly gains to finish the week 3.2% lower at $1820.00.

The daily RSI is 57.60. Initial support is $1770.00 and resistance is between $1910.00 and $1925.

Since 1982, The Kansas City branch of the US Federal Reserve has held its economic symposium in the mountain resort of Jackson Hole, Wyoming.

Over the last several weeks, we have seen US bond yields push up against 20-year highs, the FED return a split vote on a rate hike at the July 29th FOMC meeting, and Treasury secretary Scott Bessent intervene in both the Foreign Exchange and US credit markets.

Against that backdrop, financial markets were hyper-focused on the keynote speech last Friday from FED chief, Keven Warsh.

The market took a hawkish message away from Mr. Warsh’s comments, increasing the odds of a rate hike at the September 16th FOMC meeting.

And while we agree that US Consumer Inflation has remained “sticky” above the FED’s target of 2.0%, we do not believe the FED will start a rate hike cycle and potentially destabilize the US bond market for slightly lower inflation.

For example, according to a Bloomberg report last week, the US government has $7.5 trillion of T-bills outstanding and $21.5 trillion of coupon debt outstanding.

And as illustrated on Chart 1, the FED is holding over 50% of all the outstanding Treasury paper maturing in the 10yr to 15 yr timeframe and 20% of the 15yr to 20yr maturities.

Further, the FED owns almost $500 billion worth of bonds maturing over the next 12 months.

We aren’t sure what the government’s definition of cornering the market is, but we believe the FED is pretty close.

Why is this a problem?

As shown on Chart 2, the current FED Funds rate is 3.65% and the yield on the 30-yr bond is near 5.30%

The average coupon on the more than $1 trillion of US debt owned by the FED is 2.9%, so the Fed is absolutely bleeding money on all of the bonds they have owned for more than four years.

Bottom line is either the FED holds the FED Funds rate and helps Mr. Bessent drive longer-term Treasury yields lower, or this recent intervention will fall flat and probably do more harm than good.

It seems like these credit market stress cycles always end the same way: Wall Street and the financial system are treated as too important to fail while ordinary investors absorb the consequences through inflation, loss of purchasing power, and currency debasement.

At current debt levels in the US, genuinely free market interest rates are politically and financially impossible. The bond market is beginning to expose that reality.

That’s why central banks and long-term investors are flocking to the safe haven of Gold, Silver and Platinum and shedding fixed income, government-backed paper assets.

As shown on Chart 3, the percentage of foreign reserves held in Gold has surpassed the number of US treasuries for the first time since 1996 and is rising.

Maybe the FED will lift rates as a symbolic gesture this year but a protracted rate hike cycle is very unlikely

Historically, when governments reach this stage in the credit market stress equation, they choose to protect the sovereign debt market and sacrifice the domestic currency.

There is little reason to believe this time the US will be any different.

The precious metals complex performed well during the month of August, and it is likely that the lowest prices of the year have been posted.

As such, now is the time to prepare for the next leg higher and consider securing your wealth by increasing your holdings of physical Gold, Silver and Platinum.