Jackson Hole And All-Time Highs: Gold & Silver Face A Challenging Week (But Don’t Count Them Out Just Yet)

SD Outlook: There are many forces that will be working both for and against the precious metals this week. Here are the details…

This week’s economic events gets off to a slow start.

Beginning on Wednesday, however, that all changes:

From Wednesday through Friday it’s all about the Federal Reserve.

FOMC Minutes from the July/Aug meeting will be released at 2:00 p.m. EST, as is customary to release the minutes three weeks after the meeting.

Why does it take three weeks, in the era of telecommunications, to release the minutes?

It takes three weeks because if the markets do not react in a way that would garner Fed approval, there is time to change what was said in the meeting in attempts to get the desired market reaction.

In other words, it’s a sham.

Additionally, we have the once per year central banking love-fest in Jackson Hole, Wyoming. Here’s the Kansas City Fed describing the event for those interested in dog-n-pony shows. The bottom line is that the Economic Symposium a blend of central banks from around the world, big business, government, and financial institutions, and basically it is a “retreat” type of event where the important economic issues of the day are discussed. Of course, we’re talking about the central banking approved important topics, which everybody still has the utmost faith in, that the central bankers are in control and acting in the best interests of the financial community. They are not, but this is not a diatribe about the (il)legitimacy of central banks in general and the Fed specifically. Instead, for our purposes, know that Jerome Powell, current Fed Head, will be giving a speech at 10 a.m. EST on Friday, so specifically for our purposes, generally speaking, the markets will be prepped in anticipation of the speech, which means some pressure will be applied to gold & silver, and the stock market will be propped.

What is interesting, however, is we do not yet know what the Fed has in store for the economy, as in if the central banking community on the same page as the Trump administration or not? For now, it seems that who we call the “cartel”, which is nothing more than the Exchange Stabilization Fund, the Fed, and agents acting on behalf of both, is still operating under one playbook.

We shall see.

Is the Fed political?

President Trump said they are.

If the Fed is political, would they be looking to shape public opinion going into the 2018 mid-term elections?

Well, if they are political, the answer would certainly be “yes”.

And it appears the Fed is not the only entity looking to shape the outcome of the 2018 mid-term elections.

In fact, war monger and National Security Advisor John Bolton wants everybody to know that in addition to Russia, three more sovereign nations could be “meddling” in our elections:

Bottom line: Fundamentally, in addition to currency turmoil, which we will get to in a minute, the Fed will be in the limelight this week, and we can throw in some Deep State neocons warning of terrible threats for good measure.

So let’s start with the currency issues.

Is Turkey now solved?

The lira has pulled back substantially:

However on Friday and again overnight and into this morning, the lira has weakened again somewhat.

However, the dollar has weakened ever so slightly against the euro after setting 52-week lows last week:

Although overnight and into the morning, like the lira, the euro has fallen somewhat.

I zoomed out to show the last several years of the US dollar versus the Chinese yuan:

That’s a double top in my book.

There are a few things points of interest when it comes to USD/CNY.

The vertical line up in the first third of the chart was in August of 2015, around the 19th, IIRC, and we all know what happened on Monday, August 24th, 2015 – the markets came down hard, and the devaluation of the yuan was the stated mainstream culprit.

Interestingly, we have a Chinese yuan that is even weaker now, and we have a accelerated steepening of the weakness – that is to say, the yuan has weakened this time with a faster trajectory, yet the markets, as you will see, are still right at the point of all-time highs.

Many, myself included, associate the weakening Chinese yuan as a counter-attack in the trade wars, but regardless, the USD/CNY pair is something to keep our eye on because if the yuan keeps falling against the dollar, we would be expecting to see weakness in the US markets.

Additionally, there is the very tight correlation, if not causation as Brady and Hemke argue, in the currency pair and the dollar price of gold.

Sure enough, when we zoom in over the last six months, well, we all know what has happened to gold (and silver):

If we are getting a pullback in USD/CNY, then we would expect to see a pop in gold & silver, and we did somewhat see that on Thursday and Friday of last week, so we shall see.

For our purposes, we need to know that not only has the yuan been weaponized in the trade war, but now, with the rhetoric coming from Bolton on the possibility of the Chinese “meddling” in the 2018 elections, the situation with China, and potentially the Chinese yuan, is becoming more political by the day.

As far as the dollar index, just like we saw the lira and euro weaken overnight and into this morning, we have seen the dollar pop slightly and remain over 96:

With all the turmoil in currencies lately, we would have to assume trade, tariffs and currencies will be in focus at Jackson Hole this week.

Granted, interest rates are still range-bound:

For the world’s benchmark, the 10-Year Note that is.

While we’re on the topic of interest rates, one thing that is working against us is the fact that the September FOMC is not all the way until the end of September, the 24th and 25th to be exact, so there is still more than a whole month of jawboning we have to deal with before actual action is taken. Granted, action can be taken, such as raising interest rates, anytime the Fed chooses, but for some reason this rate hiking cycle, if you could even call it that when interest rates are still between 1.75% and 2.0%, the Fed has only hiked when there is a press conference following the meeting.

The overall point I am attempting to argue is that fundamentally speaking, overall, there are a number of factors working against gold & silver.

The one technical, wild card that, which is in fact a big deal, is the COT Report, which we should assume is keeping the bottom from really falling out in the metals.

More on that later.

Rounding out the markets, on Friday I mentioned the S&P 500 was within spitting distance from new all-time highs.

But it’s not just the S&P.

Here’s the tech heavy Nasdaq:

And think about this – with all the turmoil in companies like Facebook, Netflix and Tesla, the market is still within striking distance of all-time highs.

Amazing.

I can see the central bankers propping the markets through Friday for the congratulatory “pat on the back” and a way of signaling to the world “see, we got this”.

Of course, when VIX is still under 13, it’s not that hard:

Furthermore, all they have to do is whip up some fiat currency and purchase products like the e-mini to prop the markets, and since the Fed operates in secrecy, we can rest assured knowing that is exactly what they are doing, because they can, at least for the time being, and until they have plans to bring the markets and the economy down.

We just don’t know when that is, and a number of traders and investors who do not have the inside information they shroud in secrecy, as in, the ones stealing from everybody else, those “not in the inner circle” traders and investors have gone broke because they got the timing wrong.

Which is why just stacking the physical, provided there is time to wait it out and the metal does not have to be sold due to financial necessity, is one of the easiest, surefire investments that can be made. Every ounce added to that stack, every coin, every bar and every round will be rewarded, it’s just a matter of time.

Moving on to commodities, we still see the $45 print for crude oil from a year ago:

Yes, the price of crude has pulled back and is now at the 200-day moving average, but we’re still $20 higher in price than last summer.

Copper has bounced and appears to be continuing the bounce as we look to open here on Monday:

This week will be critical as we are at inflection points in all markets really, and watching copper can help give us a sense of where things could be headed.

Platinum has really only headed one way this year:

And platinum is right there with copper at the “dead cat bounce” or beginning of rally inflection.

We’ll see.

Interestingly, with last night’s and this morning’s trading action, palladium has now recovered all of the “crash” from last week:

And palladium led in 2017, so, like with copper, as far as a gauge for the commodities and the precious metals, it will be smart to watch the price of palladium this week.

This brings us to gold & silver.

There has been a lot of chatter about revisiting the December, 2015 lows.

First off, I don’t think we will.

I think w’ere pretty much at the bottom now.

I have zoomed out the gold to silver ratio to take the December, 2015 lows into account:

Generally speaking, gold came off of the bottom and rallied 30% from the end of 2015 through the beginning of July, 2016.

In that same time period, silver rallied over 50%.

What does that mean for us as we get ready for the next major move in gold & silver?

I get it – past is not prologue, but let’s assume we are at the precipice of another 30% rally in gold.

Let’s go with starting points of $1165 in gold, because that’s basically where the bid came in last week.

Think about this – a 30% move in gold would put the price at $1550.

Now, let’s not even think about what $1550 would do for investor psychology and behavior. It would be uber-bullish, but that’s not my point. My point is that we’re currently over 80 again on the gold to silver ratio and it seems we will be starting the next rally from around that point.

If we rally to $1550 in gold, and if the ratio drops to 65 like it did in 2016, we are basically talking about a $23.85 silver price, next rally, and that would be representative of a 60% move in the price of silver, starting from $14.75.

My point is that these numbers are not far-fetched at all – it’s basic, simple math.

Sure, it sounds so far off right now, but that rally coming in the end of 2015 was over the course of seven months. If somebody said to me, “Hey Half Dollar, would you take a $1550 gold price and a $25 silver price next March, 2019”?

I would.

Which brings us to the COT Reports from last Friday.

Check out gold:

And silver:

Speculators in both gold and silver are net short!

That’s bullish!

Remember, most of the people are wrong most of the time, and when the speculators get all one-sided like this – the opposite usually happens, which means we’re literally one-sided to the downside in gold & silver, right at the cost of production, and a rising oil price, and markets that are double-topping,

Which way do you think the price of gold & silver are headed?

Overnight and into this morning has been pretty ugly:

So it is hard to tell where the momentum is right now.

But we have that bounce to end the week last week in gold

Which was also there is silver:

And just like with the other commodities and precious metals, it is too hard to tell if this is some sort of “dead cat bounce”, or the start of the rally.

However, let’s recap, because this has been a long post.

In gold & silver’s favor:

  • Very bullish COT Report
  • Currency turmoil (gold & silver actually performing where there is chaos)
  • Copper and palladium could be signaling the bottom is in, palladium especially
  • Crude oil still over $65
  • We’re basically at or near cost of production for gold & silver, in general

Working against us:

  • Fed dominated headlines this week culminating with a central banker orgy in Jackson Hole
  • Stock market that could hit fresh new, all-time highs this week (mainstream “all in” on the stock market)
  • Peak Trump
  • Total complacency in the markets (low volatility)
  • Stong dollar
  • A range-bound yield on the 10-Year Note
  • A trade war which could be combined with further yuan devaluations

So it’s a mixed bag really.

My call this week would be for unchanged to slightly higher, especially since when we saw the bottom nearly fall out of gold last week, we saw the bid come in at $1165.

But either way, we do know the next big move is higher, not lower.

It’s only a question of when?

Stack accordingly…

– 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.

Paul’s free book Gold & Silver 2.0: Tales from the Crypto can be found in the usual places like Amazon, Apple iBooks & Google Play, or online at PaulEberhart.com. Paul’s Twitter is @Paul_Eberhart.

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