SD Midweek: “Priced-in” – That’s where gold & silver find themselves and that’s why they’re ready to shine. Here’s an update on this most crucial day…
There’s a term that the financial analysts and pundits like to use – “priced-in”.
When something is “priced-in”, it means that whatever could have an effect on price has already had that effect.
A good example would be a company that reports lousy sales in a quarterly earnings report, the company has a scandal with its executives that is causing problems and doubts about management, and then, all of the sudden, the company finds itself under investigation by some federal agency for some violation the company may have committed.
All of that incoming bad news would get “priced-in” to the stock price by the stock dropping in price.
Tesla is a good example of taking bad incoming information and pricing it in.
The company is scandal plagued, their cars keep crashing, and they are spending money nearly as fast as the Fed can print it.
We can see this bad news got “priced-in” to the stock several times over the last year:
OK, “Great, what does this have to do with gold & silver Half Dollar”?
It has to do with this: The rate ‘hike’ is already priced-in to gold & silver.
You see, for reasons I’m not going to get into here, which I touched on in this article earlier this morning, the MSM sees the rate hikes as “bad” for gold & silver.
The market is assuming that the Fed will in fact hike the Fed Funds Rate from 1.5%-1.75% to 1.75% to 2.0% (it’s a floating range).
Since the market knows the Fed will hike, people “sell gold” because rate hikes are “bad” for gold.
As a specific example, we typically see gold & silver making short term bottoms in December the week of the Fed FOMC meetings.
Usually the day or two before the Wednesday (the meetings are two days long, and they always conclude on Wednesdays).
What is going on in this example is that the market is “pricing-in” a rate hike’s effect on the price of gold & silver, which in our case, means that the price will go down because people sell gold based on a rising rates.
We can see how this pricing-in took place at the end of last year, and on the day of the December rate hike, silver began its December rally:
Because the metal got “priced-in” in advance of the “hike”.
All of that is a long winded way of saying that the rate hike is already “priced-in” to the prices of gold and silver.
I wanted to explain that concept to those who are new here or those who may not understand how markets work in that sense.
The performance over the last couple of days show that gold & silver look fully priced-in for today’s rate hike.
Which is a good thing.
Let’s get this rally started already!
Since this is such an important week, I’ve decided to show the events calendar going into week’s end:
The point here is that we still have many data releases and fundamental factors for the remainder of the week, but the biggest one happens today at 2:00 p.m. EST when the Fed releases their press statement and Fed Head Powell gives his press conference full of MSM slow-pitch softball questions sometime around 2:30 p.m. EST.
The markets should be moving then – the stock market, the dollar, gold and silver – basically all markets will see late afternoon action today.
And, in my opinion, the rate hike is already priced-in to gold & silver, which means the metals are primed and ready to shine.
It can also be explained, as I have explained before, to be a “sell the rumor (of the rate hike), buy the news (after the rate hike)” event.
Either way, things look good for gold & silver going into this afternoon.
We see the gold to silver ratio is now down to a 76-handle:
Which is what we want to see.
As this rally grows legs, we will want to see silver outperforming gold, and, assuming the short term bottom was put in back in mid-May, as the ratio keeps falling, it will finally be falling for the right reasons – that prices are rising.
On the 3-minute chart we can see what pricing-in looks like:
Since the market opened Sunday evening, silver is up slightly, while gold is down slightly, with the over all direction being flat.
In other words, the metals have not sold off into the FOMC today because they had already sold off in anticipation of the rate hike. Most likely on June 1st and that first trading week in June following the smashingly good jobs report which basically guaranteed a rate hike.
On a side note, what is not “priced-in” would be a fed “hold” on the rate hiking cycle, as in the Fed does nothing and leaves rates unchanged. The markets are expecting a hike, so if there is no hike, we could see an even bigger move up in the price of gold & silver.
A rate cut, while we’re not there yet, is super bullish for gold & silver and the whole pricing-in mechanism of the markets.
Gold is trying to get back above its 200-day moving average:
And there is still a lot of time left in the week for not only that to happen, but also a crack at the 50-day.
And remember, perhaps lost on everybody now, especially with the terrible sentiment lately, but we haven’t seen any real power surges in nearly two years, and I’m talking about moves of $100 in a single day.
I’m not expecting that kind of a move today, but a $25 and especially a $50 move (which I’m also not expecting today) would be a nice start to get some excitement back into gold.
If all gold can muster is a $15 pop, sure, not what everybody is wanting to see, but it will be this thing called “progress”.
Silver has performed better than gold so far this week:
The 50-day moving average is pointing up again too. We’re really starting to make progress in silver. It may not seem like we are, but the grinding over the last several weeks now has been a grind higher.
Palladium decided to come down and tag the 200-day in the wee hours of the morning:
But palladium’s 50-day is turning up again, just like silver’s. That is a good sign.
Platinum still can’t catch a break:
Down three of the last four days, and down in the overnight/morning session today, we really need to see the fundamentals kicking in for platinum.
They will, it’s just a matter of time.
Copper looks like it could be finding a bottom here:
Whatever happened to President Trump’s infrastructure spend?
Anybody remember that?
We were going to rebuild all these bridges, and airports, and parks, and all of this stuff like re-vamping and updating the telecommunications grid, all of which would require massive amounts of copper.
Copper is one of those things where you just don’t know what is being priced in with those kind of erratic swings.
It’s pricing in something.
In time we’ll see what that thing is.
Crude oil looks like it may straddle the 50-day after all:
I’m not fully convinced crude isn’t going to take a trip down the the 200-day, but that straddling of either side of the 50-day moving average has been consistent over the last year.
The US dollar is in a dangerous place here:
Right now, we’re at a lower-high. If the dollar turns down again and closes below 93.23, that will give us a lower-low. Lower-highs and lower-lows mean the trend is bearish.
I think the dollar could in fact turn down again, as early as this afternoon, because if the metals are going to rise, simply based-off of the inverse relationship with the dollar, the dollar would be looking to fall.
And the dollar is coming off of that massive “overbought” rally.
So we’ll see.
The yield on the 10-year is in wait and see mode:
Granted, as we’ve seen time and time again since the Fed began this latest rate hiking cycle in December 2015, the yield on the 10-year is not something that has reacted instantaneously, but rather, there has been a lag in yield from the rate hike until the yield on the 10-year begins to move in earnest.
And remember – the rate hike is on the Fed Funds Rate, which is basically an overnight rate that banks use to lend to each other. So we’re talking about very short term interest rates. It’s not like the Fed is determining the rate of U.S. Treasury Bills, Notes and Bonds (in theory anyway, which requires us to cast aside the intervention and manipulation to make that claim).
The VIX seems oblivious to everything going on in the world:
But I have said all along that the Fed wants the markets as complacent as can be going into today’s FOMC meeting. With complacency and rising stocks, the Fed looks good in the eyes of the financial press.
As such, VIX has been slowly walked back down to a state of market bliss.
I missed calling the top on the Russell 2000 (the “small caps”, which I call the “Heartbeat of America” stocks):
I still say we’re set to roll over, and soon, only there is so much optimism about how great America has been made again.
I don’t see it, but I digress.
Bitcoin has been stair-stepping down all week:
Right now, holding is a choice, which the Bitcoin Fanboys like to call “hodling”.
But, if the price keeps dropping, holding may not be a choice, because there may not be any buyers coming in to the market.
If that is the case, the Bitcoiners will be holding all the way down to Bitcoin’s intrinsic value.
– 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.