SD Midweek: On Monday we asked what the catalyst would be, and today it seems we’ve found the rather deadly answer. Here’s the details…
The war drums are beating louder and louder, and now it seems the sound of those drums will be drowned out by the sound of incoming bombs, missiles and rockets.
Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!” You shouldn’t be partners with a Gas Killing Animal who kills his people and enjoys it!
— Donald J. Trump (@realDonaldTrump) April 11, 2018
The markets in general, and gold and silver specifically, have found their catalyst for the next rally: geo-political tension and/or war in Syria.
It’s no secret the main export of the United States is death and destruction via the war machine, and it looks like there is a ramping up of production and an excess supply.
The problem is that the adversary while on the surface is Syria and to a lesser extent Iran, the question remains weather this is a proxy war with Russia or if the United States and Russia are on a collision course?
If it’s a proxy war, think Vietnam. If it’s a superpower against superpower, well, we’d have to look back to WWII when superpowers directly clashed the last time.
God forbid we’re talking about WWIII on the horizon.
I’ve seen first hand that “war is racket” and while serving one’s country in the past may have been a noble calling, now it’s all about serving the Deep State, the military industrial complex, Halliburton, KBR, and the plethora of profiteers that feed off the war cycle.
But we must talk about all of those things because that is the catalyst the markets have been waiting for.
Cycles guys will tell you it’s not the catalyst that caused the market action, but rather, the markets were going to move regardless of events, so the catalyst is just another way of looking for somewhere to cast the blame.
Well the escalating tensions in Syria is certainly a big event.
The MSM has done one heck of a job of demonizing Russia and Putin, and somebody or some group has obviously gotten to President Trump because the President Trump of this week is nothing like Candidate Trump.
Regardless, war and the threat of war is always a catalyst, and since North Korea is so 2017, and since Syria under the protection of Russia is a much bigger fish to fry, the Deep State has their hands full right now.
How will the geo-political events play out?
We don’t know.
We could see some strike on a Syrian airbase that misses everything like when President Trump was rather green in his presidency, or we could see build up, troop movements and a protracted military campaign.
It’s not for me to decide how to play this chess game or to look at the possible outcomes.
I’m here to look at the markets, and I will look at them in light of the war card today, so let’s move on.
We can see what is not a flight to safety:
The dollar has fallen for the last three days and looks set to open even lower today. If the dollar is not a flight to safety, we could be seeing the start of the next leg-down in the dollar.
War is inflationary, very inflationary, and inflation, either by the printing press or an increase in prices, spells out a weaker dollar, and that is what we are seeing.
In the past during periods of panic and turmoil, we would see people move in to the safety of the U.S. dollar, but now that the dollar is the currency called into question, under scrutiny, there is no such move.
Nor has there been a move into bonds:
Pushed by the mainstream as “risk-free” and considered the ideal flight to safety (because the mainstream must at all times bash gold & silver), the bond market as represented by the 10-Year Note above has not rallied.
If there was a flight to safety, investors would look to buy the 10-Year Note, and this would cause yields to drop, but we can see on the chart above, that yields have basically been in a suspended animation over the last two days.
So what is the theme here?
The dollar and the bond market are quickly showing their true cards: U.S. debt-based fiat currency and worthless I.O.U.’s that will eventually reach their intrinsic values of zero.
We also see what is not a flight to safety:
Bitcoin is a flight to nothing really, and as such, it has done nothing over the last several days as shown in the chart above.
Interestingly, despite the beating war drums, volatility is not on the rise:
Which means that a forecasting the markets, we will see spiking volatility soon. Right now is the calm before the storm, or in the case of our catalyst, the steak & shrimp dinner before launching the first cruise missiles.
The trend in the VIX, while straddling either side of 20, looks to be waking up again, and it is unmistakable in riding the 50-day moving average that the trend is up.
The stock market hasn’t caught on to any of this yet:
Sure, war is good for defense contractors, and interestingly, the market rallied yesterday, but the stock market (as represented by the S&P above) is not a “risk-free” asset or a flight to safety, so if the war drums turn into deafening bombing runs, that 200-day may not hold for very longer.
Copper will be needed to rebuild post war, but overnight it took a breather:
The question is how wide spread and how destructive will any kind of escalation of force be?
It is important to note that copper broke-out above its 50-day moving average yesterday. And if we have been in a sideways channel for the last nine months, we’re quickly reaching the top of the channel, so a break-out to fresh new highs could be imminent.
Crude oil is spiking to the beat of the war drums:
We could be at those highs in no-time if things really get heated. Once crude takes out those highs from late January, we could be in the $70s in no time.
What trader is thinking about the ramifications of $70 oil right now? Who is thinking about $75 or even $80 oil right now?
Not many are, but if those prices become reality sooner than later, dynamics in all other markets are going to change on the quick.
Platinum has its work cut our for it:
Despite the oncoming geo-political chaos and possibly even war, platinum has some catching up to do on the charts.
Palladium has some catching up to do as well:
Palladium was very oversold recently, so it was to be expected that we would start to see some nice black candles on the chart.
Here’s the thing: Platinum and palladium are both precious metals, and they are both industrial metals, so depending on the escalation, we could see platinum and palladium rising in price based on industrial demand. And that makes sense because the only true flights to safety in times of crisis are gold & silver.
Don’t get me wrong, if push came to shove and my choice was something other than gold & silver, it would be platinum & palladium, but if we wan’t to really go down the post-apocalyptic barter path, who has some genes lying dormant that understand platinum and palladium like they do gold & silver?
But I digress.
Let’s not get too excited about the gold to silver ratio just yet:
Although it does look like we are at the last of our opportunities to buy above the 80 level. My personal threshold for the last several years has been 75, which still means silver is ridiculously cheap compared to gold, but it does appear that silver is starting to get perky on that chart above.
Moving on to our true “flights to safety”, “flights to quality”, “hedges against uincertainty”, or whatever you want to call them, let’s get into the gold & silver charts.
Today we save the best for last.
Starting off with gold we see the yellow metal is starting to run:
Under normal market conditions, the Relative Strength Index (RSI) on the 1-hour chart above would look like it’s overbought, but consider these points:
- There is pent-up energy after the cartel had enough of gold’s run in late March when gold decided to rally
- The “fear trade” is on with the escalation of force in the Middle East
When taking those two points into consideration, we see that we could be testing that $1360s resistance in no time.
So looking forward, here’s our next resistance point:
That $1377 print was on July 6, 2016. That is the level we really need to break above.
If we were to look back even further, we would see in March of 2014 gold in the $1380s. But we really should not discount the pent up energy and one more dynamic I hadn’t mentioned yet – the massive money printing around the world over the last four years.
You see, it seems to me that the $1360s is the true level the cartel is worried about, because with all the fiat sloshing around in the system, gold could scoot past those resistance points with ease.
Taking it day by day, gold is looking good right now:
Up four days straight, it’s hard to see gold not testing the recent highs on momentum as early as this week.
Silver is even looking better on the daily chart:
A major step forward we needed was a close above the 50-day moving average, and silver gave that to us yesterday.
Last week it was about fighting for every inch on the chart, but this week, if we’re at the start of the rally, it could be about the start of the epic short squeeze of the Large Specs.
You see, the technicals are starting to turn bullish again. Yesterday silver broke above its 50-day on decent volume, the RSI is neutral, and the Moving Averages Convergence – Divergence (MACD) is turning bullish as well.
Silver has all kinds of cartel choke points – We’ve got $17, $17.50, $18, $18.65, but all those resistance points could be blown through on the quick if the epic short squeeze is unleashed – and we have one of the most bullish catalysts of all right now in the cards.
So looking back further, we can see what we really need is to get above $22:
Yeah, I know, it seems so far away, especially over the last year and a half where silver had one run and nothing into the $20s, but that’s the thing – Just as bombs and cruise missiles are explosive, so is the pent-up energy in silver.
That’s the thing about catalysts – if they are sufficient enough in scope and scale, which escalating war certainly is, they can solidify trend changes and dynamics that are set in motion but waiting for that final push.
We may have just found the push we’ve been looking for in the war card.
As unfortunate and deadly as that may be.
– Half Dollar