SD Friday Wrap: Was this a comeback week for gold & silver, or just another false break-out? Here’s an honest look at both possibilities…
Editor’s Note: This Friday Wrap was produced in the morning and does not include any afternoon market action. Additionally, there will be no SD Outlook on Monday – but we will have a full day of posts starting with a special post instead of the SD Outlook.
There’s been a lot of Bitcoin chatter this week so let’s check in on everybody’s favorite crypto:
It’s not looking good for the HODLers that’s for sure.
While I’m on the topic of Bitcoin, here’s a thought: With all the crazy emerging market break-downs and, emerging market currency and bond market turmoil, and general chaos in the global financial economy, why isn’t Bitcoin bid as a “safe haven”?
Here’s another thought while I’m on it: Why is there maximum complacency in risk assets, yet Bitcoin is not being bid as a speculative risk asset either?
I’l repeat: It’s not looking good for the HODLers.
See what I mean about complacency:
The VIX is now at a 12-handle.
Even so, the stock market is having a hard time catching a bid here:
Here’s another thought: If the stock market can’t get going again, then this is as good as it gets, and things will only go downhill from here, so at what point will we see waves of selling coming in to protect and bank on years of profits before seeing profits vanish?
It’s not looking good for the original HODLers, the “buy and holders”, of the stock market either.
The yield on the 10-year has completely broken down:
We could be seeing the wrongly executed “flight to safety” (Because when people rush in to buy bonds, the price of the bond goes up, but the yield of the bond goes down).
Remember this, however: When the C.I.A. controls the narrative abroad, and when the narrative is that the U.S. economy is booming again, which it’s not, then it’s easy to see a “flight to safety” into the bond market to escape all the emerging market chaos.
Sooner or later the narrative breaks down, and the bonds will be shown for the true asset class they are – risk assets.
If there was ever any doubt the dollar was “overbought”, then there should be no doubt now:
I lost track of the exact day, but I think it’s April 17th when the dollar entered extreme territory on the Relative Strength Index.
The dollar will roll, eventually, and it could indeed be the case that all the chaos around the globe with currencies is putting a bid in the dollar right now too.
“Best house in a bad neighborhood”, “Cleanest shirt in the dirty laundry”, “Prettiest of the ugly sisters”, “Insert-you-favorite-cliche-here”.
That’s what we’re looking at right now.
At a point they will realize the true flight to safety is not in the dollar, but the ultimate currencies, money that is, gold & silver.
W’ere not there yet and as such we’re in my opinion in a bear market suckers rally.
But make no mistake about it – the dollar is going down for the count.
Whether that count is a slow suffocation a la China & Russia increasing their dominance in the global foreign exchange markets, or whether the dollar bursts into a hyper-inflationary ball of flames, it is still a dead dollar walking. A short timer.
Don’t take Half Dollar’s word for it – The Fed is actively telling us they intend to devalue the dollar by 2% per year – and that means that mathematically, it is certain to reach its intrinsic value of zero.
And it will.
Copper is right smack dab in the middle of it’s newfound tight range:
Call that range $3.05 – $3.10.
Since the beginning of the year, as the copper chart shows, it has been a pretty bearish picture. The same pain that’s felt in the precious metals is making it’s presence felt now with the base metal.
Crude oil hit a multi-year record high on Tuesday and then crude oil took a dump for the rest of the week:
Time to see how much support there is at the 50-day moving average. Interestingly, with the nose-dive today, crude will soon be reaching “oversold” territory on the RSI. That drop is impressive.
Although the MACD looks like it’s just getting started with a bearish divergence.
So we’ll have to see. A likely scenario is straddling either side of that 50-day moving average like we did for the two months in early February through early April.
I believe it was either Monday or Wednesday when I said that crude and the dollar needed to decouple:
The decoupling, so far, is a break-down in the price of crude oil and a continued break-out in the dollar.
I was wrong about which way they would break.
See – I admit when I’m wrong.
There’s no calling out Half Dollar for inconsistencies, back-pedaling or conveniently omitting the outcome of bad calls.
I blew it.
But I still think it will be the dollar that ultimately breaks down and crude that breaks-out.
Besides, look at just how overbought the dollar is right now.
So I am expecting crude and the dollar re-couple and converge yet again before they ultimately break in the directions I’m forecasting (crude up & dollar down).
Call the action right now the “break-out fake-out” in the dollar.
I just don’t see how the dollar can keep getting more and more extreme by the day.
But remember that famous saying – “markets can remain irrational longer than you can stay solvent”.
Many a trader has gone broke getting the timing wrong.
Palladium looked good to start the week:
However the move has faded, and after breaking out above both moving averages on Monday, we’re finishing the week below them.
Interesting though, because palladium (along with platinum) was just named a mineral “critical to national security and the economy”, and you think that this piece of fundamental news would put a bid under the precious metal.
It will put a bid under palladium.
When you have “a supply chain vulnerable to disruption” that is code for “expect spiking prices”.
It could almost be thought of as what happens to bottled water whenever a hurricane blows through a major area. The supply chain of bottled water is disrupted, and what happens to the cost of bottled water? Well, the free market kicks in and the price surges. That said, there would be a premium built into the price of the metal in advance of any supply chain disruption.
Another thing that could happen with palladium is that manufacturers choose to purchase and stockpile additional metal, which creates more demand and takes supply off the market, and that is also supportive of higher prices.
So this stuff will get worked out, in time.
For now the markets haven’t figured it out.
Ol’ Half Dollar has figured it out, but he’s biased towards gold & silver.
Something about that whole U.S. Constitution requiring gold & silver thingy.
If platinum rolls over here, there could be some serious rough times ahead:
But what I just said about palladium applies to platinum as well.
So where it may look bleak in the short-run, platinum could be a trade that rakes in mad profits down the pike, especially if it gets hit here and the underlying fundamentals kick in as I described..
The gold to silver ratio is in a clear downtrend:
If silver starts to finally outperform gold in this rally, then the ratio could be in the 60s in short order.
Then we’d finally get some excitement back in the sector.
So that’s the big question: Is this week’s price action the start of the rally or not?
I called the start of the rally, but It’s weaker than I was looking for.
Gold isn’t just going to have to be on the top of its game next week, but the cartel is going to have to makes some mistakes to help out our cause.
They’re not infallible.
But, “Half Dollar, answer the question. Is there enough momentum to carry us next week?”
The week is ending on a down note, so that’s not good, but I think there is and you will see why as you read on.
Remember, I was looking for a close between $1305 and $1315 to get that momentum going into the all important short week next week, and right now, we’re above $1300, but barely.
So first up is the gold daily chart:
The outlook is mixed.
Yes, we had the move up, but we’re still below the major moving averages. That’s a bummer because getting above the 200-day and closing above it would have been clutch.
However, at the bottom of that chart I drew a little blue arrow showing the bullish divergence in the MACD. That is the positive to the negative of the moving average dissapointment.
Now why do I think this momentum has the chance to carry us through next week to confirm the rally?
It has much to do with the dollar more than it does with gold itself, because any day now, and I know – I get it – “Half Dollar said the dreaded ‘any day now’ and we’ve been hearing that for seven years”.
But you see, any day now, the dollar is going to start rolling over.
When that happens it should put a bid in the metals.
Next week is going to be very, very important, with a holiday shortened week to start it and a BLS Jobs Report to end it, and we know the cartel will be sitting by with fat fingers at the ready all week long.
But if the dollar rolls, that could give us the boost of positive momentum we need in gold, and couple that with a policy error or a cartel mistake, and the rally can be ours.
Besides, the gold weekly chart is starting to look more bullish:
Where on the daily chart the signal is mixed, on the weekly, we’re above the 50-week moving average. That’s a big deal.
Another good sign is that MACD. Notice it was in a bullish divergence on the daily, and if that momentum carries through next week, then we will be putting in a bullish divergence on the weekly as well.
Not next week per se, but developing over the course of the few weeks. Remember -weekly charts are more “medium-term” as the Fed likes to say.
Either way, we’ll no next week if this rally has legs.
But there is a problem.
My outlook on silver is not as optimistic as with gold.
It has to do with that dang range again.
I said that I wanted to see silver close out the week above $17 so this move up in price could have some momentum behind it.
And look at where we are on the daily:
We’re right smack dab in the middle of the pain trade – that sideways channel between $16.20 to $16.80.
That’s not a good sign on its own because it means there is no change in sentiment other than our agony is right smack dab in line with the average level of agony we’ve had to endure for months now.
Call it “Operation Enduring Agony”.
Now I drew two little black arrows on the daily..
So we do have a positive take-away – that’s a higher-low on the chart, and that’s another word for progress.
The MACD diverged bullish a few days ago, but today’s downward action isn’t helping.
So the picture overall is mixed, with a disappointing slant since we couldn’t get over $17.
That said, we are still up on the week:
We’ve also had more trading volume on the week than any of the last four.
That’s more good news.
Granted all we’ve done is teeter-totter up,down,up,down,up,down,up in the pain range.
Since it’s Memorial Day coming up, let’s end this Friday Wrap with a saying the Marines say (even if they are a Department of the Navy).
Sorry, had to go with that low blow since I’m an Army guy.
Side note – When people ask me what the difference between the Army and the Marines is, I usually say, think Duke vs North Carolina.
I’m a graduate of North Carolina by the way, so it’s only natural I went Army.
But I digress.
Let’s end with a saying from the Marine Corps: “Pain is weakness leaving the body”
And it pertains to silver more than anything right now.
This pain in silver is weakness leaving the market.
Because getting strong in silver means silver is in strong hands.
And the grip is firm.
The cartel may try to pry it out, but there’s no letting go.
Because the white metal is in strong hands.
With a firm grip and a fierce determination.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.