Gary Wagner: A Correction is Coming for Gold, But This is The Level to Watch

Summary

In this insightful discussion, Jeremy Saffron and Gary Wagner delve into the recent surge in gold and silver prices, breaking historic resistance levels despite a strong U.S. dollar. They highlight how physical demand, particularly from central banks and large-scale buyers, is driving the precious metals market, with silver hitting over $50 and gold making parabolic moves. The conversation explores technical indicators, market sentiment, and the ongoing dollarization trend. Wagner provides expert forecasts, projecting gold to reach $4,300 by year-end and silver to hit $55-$58, while cautioning against speculative extremes.

Takeaways

• 😀 Gold has surged 9.5% in three weeks, trading above $1,450 an ounce, while silver has shattered the $50 resistance, a significant milestone since 1980 and 2011.
• 😀 Despite the rally in precious metals, the US dollar index has risen over 2% in the same period, fueled by weakness in the euro and Japanese yen, indicating an unusual divergence between metals and the dollar.
• 😀 Silver has entered a 'backwardization' phase, where spot silver prices are higher than futures prices, signaling potential physical tightness and a silver squeeze.
• 😀 There is an enormous demand for physical silver, with spot volumes in Asia up 40% week over week, and premiums on silver being reported at over $120 an ounce above COMEX settlements.
• 😀 Technical analyst Gary Wagner forecasts silver to reach $55-$58 by the end of this year or the first quarter of next year, as demand continues to outstrip supply.
• 😀 The silver-to-gold ratio has collapsed, highlighting the strength of silver's rally and the significant shift in the precious metals market.
• 😀 Gary Wagner points out the importance of moving averages in understanding gold's technical chart, confirming the bullish sentiment as gold breaks out to new highs.
• 😀 There are concerns about speculative money entering the market, which could signal a potential top, but Wagner believes the fundamental support for gold remains strong with rising inflation and a weakening dollar.
• 😀 Central banks, particularly China, are significantly increasing their gold reserves, signaling a trend of dollarization and a shift toward gold as a neutral reserve asset, further tightening supply and driving gold prices up.
• 😀 Despite the current parabolic rise in gold prices, Wagner expects potential corrections, but believes that gold's long-term upward trajectory remains intact due to the inherent value of gold compared to fiat currencies.
• 😀 The dollar's strength has not hindered the rally in precious metals; rather, gold and silver have had to overcome the headwinds posed by a rising dollar to achieve their gains, showing resilience in the market.

Q & A

What is the significance of silver breaking the $50 resistance level?

Silver's breakout above the $50 resistance level is historically significant, as this threshold has held since 1980 and 2011. Breaking through this level signals a potential shift in market dynamics, with the silver to gold ratio collapsing, indicating increased demand for silver and a possible physical squeeze in the market.

How does the divergence between the US dollar and precious metals impact the market?

Normally, a weak US dollar correlates with rising precious metal prices. However, in this instance, despite the US dollar strengthening (up over 2% this month), gold and silver prices have continued to rise. This suggests that other factors, such as physical demand and systemic risk, are driving the precious metals market, independent of traditional correlations.

What does backwardization in silver futures indicate?

Backwardization, where spot prices are higher than futures prices, typically signals a tight physical market. This situation suggests a silver squeeze, where demand for immediate delivery outpaces supply, causing traders to bid higher for physical metal than for future contracts.

Is the strength of the dollar affecting the price of gold and silver?

While the strength of the dollar usually puts headwinds on gold and silver, they have still managed to increase in price. The metals have to overcome the strength of the dollar to show positive movements, indicating strong underlying demand and resilience in the precious metals market.

What role do central banks play in the rising gold prices?

Central banks, particularly those in countries like China, have been major buyers of gold in recent years. Their purchases are not for speculative trading but as long-term holdings. This accumulation of gold reduces supply in the market, further supporting upward pressure on prices.

How does speculative money impact the gold market?

When speculative money floods into the gold market, it often signals a potential market top. While speculative buying can drive prices higher in the short term, it can also lead to profit-taking by institutional investors, which could cause a temporary correction before the overall bullish trend resumes.

What is the forecast for silver prices by the end of this year?

Gary Wagner forecasts silver prices reaching between $55 and $58 by the end of this year, driven by continued strong demand and market tightening.

What could indicate a top in the gold market according to technical analysis?

A potential top in the gold market could be indicated by excessive speculative buying, leading to overbought conditions. If this happens, a correction might occur, but this would likely be a short-term pullback before the market resumes its upward trajectory, given the underlying fundamentals.

What are the risks for investors entering the precious metals market now?

For new investors, the risk is that the metals have already seen significant gains, and chasing these prices could lead to buying at a high point. However, for those already holding physical metals, the long-term outlook remains bullish as gold and silver retain intrinsic value, especially amid inflationary pressures and currency devaluation.

What does the historical performance of gold suggest for its future price movement?

Historically, gold has been a safe haven asset, retaining value even as fiat currencies lose buying power. While short-term corrections are possible, the long-term outlook for gold remains positive, with prices expected to rise as fiat currencies continue to weaken and inflation persists.