SD Outlook: Several fundamental and technical factors signal that gold & silver could start their long expected rallies this week. Here are the details…
It is Monday morning, and I’m looking at the first several headlines on a popular financial news website.
I am not kidding when I type this, but check out some choice words/phrases from each each article (non-skipped top to bottom order, all articles included):
- “Over my dead body” Trump will meet with Mueller
- “Global”, “Rally Fizzles”, “Retail Apocalypse”
- “Market Has Frozen” “First month since 2008”
- “Criminal Fraud Charges Against Goldman Sachs”
- “Turmoil” “Blame Russia”
- “Conflict gauge” “Highest Since WWII”
Those are just the first six headlines, and they are in order.
There was a sponsored article between the 3rd and 4th news articles, and the sponsored article included the words “Economy” “Collapse”.
OK, here’s a question: Do those headlines speak abut the economic good times, or peace, or love and happiness in the world?
Not to me.
To me they represent what is quickly turning into a totally bearish collective psyche on the economy and the markets, with some political and geo-political uncertainty thrown in for good fun.
What do those headlines have to do with this weekly outlook?
The reason is two-fold.
First, we see the fundamental backdrop is not good for those rooting, hoping, or otherwise believing the economic good times are here. That is to say, the outlook is not good for the bulls. The fundamentals have not mattered for many years. Arguably the fundamentals have not mattered for ten years, so the question then becomes, when will the fundamentals finally assert themselves?
That brings up my second reason for bringing up the headlines, but it has to do more with the technical backdrop which will be parallel to the news, and that technical backdrop is the Fed “rate hike”, which will presumably take place at 2:00 p.m. EST on Wednesday. As of this morning, there is a 78.4% probability the Fed will hike.
I think they will hike.
I bring up the rate hike because it is like a “which came first, the chicken or the egg dynamic?”.
You see, ultimately it doesn’t really matter whether it is now the fundamentals finally asserting themselves, or the technical rate hike, but one of these days, and likely sooner than later, something fundamental or technical is really going to break the market. We know that after ten years of central bank money printing, this market is primed and ready for real crash.
As it should.
Will the market come down before the end of this year?
I think we are getting very close to finding out.
My popcorn is at the ready.
Looking at the calendar of events, we see the main event is indeed the Fed mid-week, but the FOMC is not the only thing going on:
Notice the common theme on each of the first three days?
In addition to the two-day FOMC with press conference after, we get more data about the state of the housing market.
There is not even any let up of important economic data on Thursday or Friday:
This is going to be a busy week as we head into the home stretch.
What is the overall point here?
If the fundamentals and technicals were to come together and finally impose their will on the markets, then I’d be pretty nervous right now if I was a bull.
Good thing I’m a bear.
And of the “economic collapse” species at that!
I do think the gold to silver ratio is topping out here:
From pretty much mid-August to present date, the gold to silver ratio has been a gift to those looking for the arbitrage play which takes place down the line.
Once it is evident the gold & silver rally is on, I think the ratio will drop into the 70s in a matter of just a few days.
On Friday, I called this week a “sell the rumor, buy the news” week for gold & silver.
Overnight and into this morning, we see that developing in gold:
I’m looking for gold to come under some pressure early on.
The 50-day moving average is sitting above 1225, and it wouldn’t surprise me if we do tag the average. The 50-day has not been kind to gold over the past year, but even of we do tag it in the coming days, I don’t think we stay there for long.
It will be an interesting week to say the least!
Silver also shows initial signs of my “sell the rumor, buy the news” theory:
Like with gold, silver may come down and test $14.50 again before the bid comes in.
That said, once the rally begins, I think we will punch through $15 with authority, and then we’ll keep on moving.
Palladium, however, is perking up already and within striking distance of new highs:
If palladium is following suit, however, I would be leaning more towards a consolidation here in preparation for the coming rally.
Platinum very well could double-bottom if the Fed interest rate hike is sold on the rumor:
However, if we don’t drop below those intra-day lows of early last week and the week before, that would be a bullish sign of support for platinum around $785.
Crude oil is turning into a nail-biter:
I’m thinking the next big move is up, however.
I’m not looking for crude oil to break-down much further from here.
Copper is really starting to coil:
The range is tightening up between $2.75 and $2.80.
I think copper’s next big move is up, not down, and I think that in part because of the US dollar.
Speaking of which, we did hit a 52-week high on the dollar last week:
I think the dollar is topping or has topped here.
The European Central Bank ended Quantitative Easing (QE) this month, and I think it is going to be more bullish for the euro than most analysts are thinking right now, which is another way of saying I think the euro is going to strengthen relative to the dollar.
Yeah, I get it, Brexit is a mess.
Yeah, I get it, France is burning.
Yeah, I get it, the fires in Europe are spreading.
Which is exactly why I think the Euro strengthens against the dollar.
To help “relieve pressure” so to say.
I’m certainly in wait-n-see on interest rates:
Yield on the 10-Year Note started the year at around 2.43%, and yield was sitting at 2.88% on Friday, which is still above the presumed new Fed Funds Rate of 2.25% to 2.50%.
That said, the Fed targets the middle of the range, so if we say the Fed Funds Rate will average 2.375%, there would still be the ever-so-slightest of breathing room between the ultra short-term rate and the benchmark US treasury.
I am looking for the VIX to perk-up this week:
If the fundamentals and the technicals do assert themselves this week, we may finally get a real spike in the VIX, kind of like the pucker-up spike from back in early February.
Last Friday I showed the Dow Jones Industrial Average chart to show just how close the stock market is to certain death.
But in this outlook, I want to show the Russell 2000:
That doesn’t look good.
If the Russell 2000 carries over that downward momentum, we could really see some fireworks here in the second half of December.
We know the rally is coming.
I think the rally could begin as early as this week, especially if the fundamentals and the technicals of the broader markets finally start to matter.
As we live out the final days of 2018, we may very well be living out the final days of sub-$15 silver.
And of sub-$1200 gold.
– 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.