With Gold And Silver Already Rallying, There’s Still More Easing On The Way

Fed futures are pricing in more than a 50% chance of another 50 basis point rate cut

With Gold And Silver Already Rallying, There’s Still More Easing On The Way

by Chris Marcus for Arcadia Economics

2024 has been an historic year for the precious metals, with the gold price up 29%, while silver is up over 34%.

Which has left gold continuously hitting new record highs this year, while silver has broken the $30 level for only the 3rd time in history (or 4th if you count the few hours silver traded over $30 during the Silver Squeeze Monday of February 2021).

So is there a pullback in our future after the furious rally we’ve witnessed this year?

It certainly would be reasonable to expect that at some point, and we have seen several corrections even throughout this year’s rally. The gold price has had 3 corrections of over $100 this year, while silver was trading below $27 at one point after earlier breaking above $32.50.

Additionally, the bank/swap dealer net short position in gold blew out to another all-time record last week after 2 weeks of short covering, while the short position held by the banks in silver has also increased substantially in the last week and remains historically high.

Yet while pullbacks are natural in any asset class that experiences a sharp rally, for those who are investing for the long-term, it’s actually rather incredible to experience the rallies that we’ve had, and yet also have the conditions in place that currently exist.

Two days ago we wrote about the easing measures that the People’s Bank of China had taken, which were more aggressive than the market was expecting. Similar to what the Fed did last week.

Yet keep in mind, this is still just the beginning. And on Wednesday CNN Bloomberg reported that China was considering injecting up to 1 trillion yuan ($142 billion) into its banks to support its struggling economy,

Meanwhile, the Fed futures are pricing in more than a 50% chance of another 50 basis point rate cut at their November meeting, and then another cut at each of the next 5 meetings after that.

We also mentioned yesterday how Pepe Escobar released a new report again confirming that the BRICS’ proposed partially gold-backed Unit currency would indeed be on the docket at next month’s meeting in Kazan. And Wednesday this was confirmed by Russian President Vladimir Putin.

So where does that leave us?

The gold price was $250 in 2001, and now it’s over $2,600 23 years later. It’s gone up more than 10x, and the conditions that have driven the move are even more exacerbated now than they were then. 

Of course the amounts of money and debt in the system are exponentially higher now as well. And it’s hard to see a way they won’t both be substantially higher again in another 23 years, with a good chance that money and debt is created at an even faster pace than what we’ve just witnessed.

(Chart courtesy of In Gold We Trust and Mining Visuals)

So while there is always the possibility of corrections, given the current conditions, would you be willing to short the metals in this environment?