While it seems that nothing much has happened in the past week or two, metals and miners have stopped falling after a tremendous rally…
While it seems that nothing much has happened in the past week or two, metals and miners have stopped falling after a tremendous rally. Such consolidation bodes well going forward, as does increasingly desperate actions on the part of the Fed and other central banks. We are drawing closer to the next lift-off in precious metals, and if so, it could be even bigger than the previous rally.
The Fed and global central banks are now turning on the monetary spigots as expected.
It does make one wonder where markets would be without such artificial stimulus. I believe this is just the beginning. I have been forecasting “monetary insanity on steroids” since 2017, and the central banks have not disappointed so far. The Fed’s liquidity injections into the repo market just keep getting bigger and bigger by the day. This speaks to just how fragile the system is. Like any Ponzi scheme, it needs ever-increasing liquidity injections in order to be sustained and avoid collapse. Make no mistake, this is QE. But we ain’t seen nothin’ yet! It’s only a matter of time before they go to full-blown QE4 that will far exceed QE1, 2, and 3 combined, in my opinion. The trigger is likely to be either a crash in stocks, which surprisingly continue to struggle, or a spike in bond yields.
While there are those who cite the drop in precious metals when QE3 occurred, this was simply due to the realization that the money being printed to buy government debt and toxic assets from banks was not making its way into circulation in the economy. It was being kept in excess reserves on the Fed’s balance sheet and used to pump the stock market, imho. In other words, there was no resultant inflation.
This time around it is being used directly to finance ballooning government deficits and maturing debt, i.e. government spending. While most of it is currently going into the pockets of the military industrial complex and to once again increase the banks’ excess reserves, the rest is going straight into the economy. It won’t be long before we hear the clarion call for QE-for-the people, i.e. MMT, and when that happens, those holding gold and silver will be rewarded handsomely for their patience.
Gold and Silver will anticipate this outcome and start to rise ahead of time, which we’ve already seen. They know that the Fed is on a slippery slope to MMT and that this is just the beginning. This is why I believe that QE4 will be more like QE1 and QE2, but the gains will far exceed those of the last rally from 2002-2011, at least in fiat currency terms.
We have seen the extreme overbought and bullish conditions completely reset to neutral or even slightly oversold and bearish. The only issue is whether we have fallen far enough. We got a $400 rally from extreme oversold to extreme overbought, and yet it took just a $100 to reset that overbought condition to below neutral. Although it could have further to go on the downside yet, such shallow consolidation is typical of a bull market, in my opinion.
We have been seeing lower highs and higher lows in both the metals and the miners recently. They will have to resolve one way or the other soon, but there are already tentative signs that it will be to the upside.
Gold closed right at its upper trendline yesterday. Even if we break up, I’ll be looking for a higher high above the 1522-1525 zone to signal that the bottom is in.
The MACD Line’s break of its signal line in red is also a positive sign.
The picture is much clearer in Silver. It opened above its trendline and closed near the high of the day. That said, like Gold, I want to see a higher high above the 17.90-18.00 resistance zone to significantly increase the probability that the bottom is in.
Again, we can see that the MACD Line has broken its signal line to the upside and is pointing up.
Like Silver, GDX also broke above its trendline yesterday. Another tentative signal that the bottom is in. But once again, I would prefer to see a break of the prior high at 28.38 to end the cycle of lower highs before getting too excited about the upside potential.
Once again, the MACD Line has broken up here, but we’ve had false signals at the two previous peaks in GDX.
Lastly, SIL, the senior Silver miners ETF, is still short of its trendline, which emphasizes how tentative these bullish signals are on balance. That said, it is closer to higher high than Gold, Silver, and GDX. The prior peak on October 9 was at 29.36, and we came within decimal places of that yesterday.
Furthermore, its MACD is showing the cleanest break up of them all.
In summary, these charts are moderately bullish, but a break of the cycle of lower highs would significantly increase my confidence that the bottom is in and that the next major rally has begun.
Keep an eye on real yields too, or more specifically, their inverse: “TIP” (Treasury Inflation-Protected Securities). Gold, Silver, and the miners are highly correlated to TIP. So if TIP breaks up, metals and miners are likely to do so also, and vice-versa for a break down in TIP.
On a final note, as I shared last week, whether the bottom is in or not, the risk-reward is heavily skewed to the upside from here, and I recommend buying the dip rather than trying to make a few pennies on any downside that remains.
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