SD Outlook: There’s a strong case to make that the Fed will not strike back, at least publicly, here’s why and what it means for gold & silver…
Here’s the perfect example of the difficulty in understanding President Trump when it comes to him being either pure genius or just having dumb luck.
Last week, we all know what the President said – I think I wrote up three articles on it because I felt it was that important.
For those who don’t know what he said, the President said, two days in a row, that he is not pleased with a strong dollar or the Fed raising interest rates.
In other words, he is publicly calling for a weak dollar policy, and he is telling the Fed not to raise rates.
Here’s where that difficulty in interpreting the President comes in – The Fed can’t strike back this week.
You see, traditionally, the Fed will maintain what is essentially “radio silence” the week before an FOMC meeting week, and that means they’re not parading the various Fed Heads around in speeches and television interviews to ‘jawbone’ the markets.
The next FOMC meeting is next Tuesday and Wednesday, with the statement and rate hike decision being released at 2:00 p.m. EST on Wednesday, August 1st. There is no press conference next week, and as such, most people are expecting the Fed to hold on interest rates (CME Group shows a probability of only 3.5% for a rate hike next week).
So I ask if the President is pure genius or if he just got lucky?
If he is pure genius, then he knew that towards the end of last week was a good time to lash out at the Fed, and since the Fed traditionally doesn’t make public comments or statements prior to a FOMC meeting week, the President can lash out again this week if he wants, or he can simply sit back and let his statements from last week percolate without fear of retaliatory remarks from the Fed.
If the President just got lucky, the timing just happened to work out to his advantage.
So which was it?
Was it a tactical strike at the Fed, or was it plain old dumb luck?
Whatever it was, this is why I feel the Fed will not strike back at the President this week.
Furthermore, last week the MSM propaganda machine was touting the claim that Presidents don’t generally comment of specific Fed monetary policy, which is hogwash to make that statement, but that’s not the point here.
The point is that the Fed now has a decision to make – break tradition, or maintain radio silence.
Again, playing devil’s advocate, if I were the Fed, I’d bring the markets down this week and not say a darn thing publicly in order to maintain the tradition.
Furthermore, if enough pain was brought to the stock market, then it could have the effect of having the President call on the Fed to do something about it. I get it, the President has the Exchange Stabilization Fund, but he would not want to let that cat out of the bag as most people have no idea what the ESF is or that it even exists.
Bottom line: I remember during the 2016 election, I think it was that Michael Moore guy who said voting for Trump was like throwing a Molotov cocktail into the system, or something to that effect.
Well, last week, the President hurled a Molotov cocktail right at the Fed (on interest rates), and also threw Molotov cocktails at the EU, China, and “others” in regards to currency manipulation.
And it’s like I said – the markets have not priced any of this in.
Everybody is (was?) convinced the dollar had only one way to go and that way is (was?) up.
Aside from the lack of jawboning from the Fed, this is a busy week filled with all sorts of economic data.
We have important housing data coming in for the next three days:
If interest rates are going up, which they have been, even if only somewhat, then buyers get priced out of houses because they can no longer afford the monthly payment, so prices need to come down to accommodate higher interest rates. Additionally, if the tax cuts threw out the whole “buy a house because you can write it off on your taxes” argument, which they did, then home prices also have to come down to price that in as well.
We have been seeing signs of the top in real estate, and we get more data this week that could confirm those signs.
Thursday and Friday are even more important when it comes to data dumps:
Thursday we get trade (deficit) data, which will surely give President Trump fuel for his trade war fire regardless of what the numbers look like, and on Friday we get the first estimate of 2nd quarter GDP.
So there’s a bunch of data coming out all week long.
Much of it comes at 8:30 a.m. EST, an hour before the ‘markets’ officially open, so it will be interesting to see what happens to gold & silver this week as the data is released.
Before getting into the charts, I want to make one side note that may be of interest.
Part of Marshall Swing’s theory is that the commercials are going to essentially ‘flip the switch’ and go from being short to being long gold.
Actually, it’s not as far out there in left field as many would think.
I mean, there’s the whole Ted Butler theory of a double-cross by JP Morgan in silver.
Well as of last Friday’s COT Report in gold, the large specs really piled on the shorts:
Granted, by the time the data comes out on Friday it is already several days old, but still, it is interesting to show the set-up in action. Furthermore, the big drop in gold didn’t even come until Thursday the 19th, and that day is not reflected in the Commitment of Traders Report, so the speculators could have piled on even more shorts.
Again – I don’t buy into Marshall’s theory because of the whole Moses thing, and I’m generally not one who favors calculating dates based on the Bible, or Torah, or whatever religious book is used, because for every one person who calculates some sort of Biblical cycle, there is another one who calculates a Biblical cycle in a different way and comes up with different years, cycles, etc.
But what I am saying is that if the Commercials are going to flip the switch and go long, the set-up is in the making.
And if they do that, well, it could be off to the races much sooner than most are expecting, and it would surely catch a bunch of people off guard on that trade dynamic.
Get some more popcorn for this week.
The gold to silver ratio is still in my 78-80 range:
The ratio came up some when the metals took their dives in mid-June, but if the bottom is in for the metals, which I think it is, and if this is the start of the rally, which I also think it is, then we should be seeing the ratio starting to come down at a faster rate.
We can see to start the trading on Sunday night, gold and silver were wanting to rise in price:
Of course, as is modus operandi, throughout the evening the metals were worked lower.
So the question is, do the bottoms in gold & silver hold.
Gold would have to drop some $20 from here:
After the rise on Friday, if gold started dropping, say, like $10, wouldn’t some of the speculators begin to cover, to either lock in profits if they didn’t last Thursday?
I mean, it looked like the bottom was going to fall out of gold on Thursday.
Like I said, it should be a fun week to watch the price action.
Silver’s got to drop over $.30 for the bottom not to hold:
If silver drops that far, then testing whole number support at $15 becomes real, just like if gold drops then testing whole number support at $1200 becomes real.
I don’t think silver would break under $15, but I’ve been more wrong than rightly lately on my calls too.
But I do think the bottom is in, in part because of what President Trump said last week.
Now, if he comes out and walks back his comments, that’s a different story.
But he didn’t walk them back last week. In fact, he doubled-down.
Back on track.
Let’s see if palladium takes up the lead again like it did last year:
Palladium is the only of the four precious metals that hasn’t put in a 52-week low.
That said, I don’t think palladium will lead the charge like it did last year.
First, if the economy is slowing, which I think it is, then there would be less industrial demand for palladium.
Secondly, and more importantly, if this is the beginning of a weak dollar policy (stated publicly), if the Fed is going to walk back the rate hikes, and if the stock market begins to come down in earnest, or if the housing bubble is popping, all of those thing which I would argue are all happening or are about to happen, then gold and silver should lead the way as they are bid for the “safe haven” qualities.
Which is also called a “flight to quality”, “flight to safety”, “hedge against uncertainty” and all those different terms.
I think that is what will go on, so I am expecting silver to finally outperform gold, and platinum has some serious catching up to do as well, so palladium could be the slowest of the movers this time around.
Speaking of catching up, platinum is the only metal to gain in the overnight/morning pre-market action:
For all we know, it could actually be platinum leading the charge higher here.
But I really think it will be silver, simply because investors will look to silver as money, where while platinum is indeed money, it is more of an exotic money than traditional.
And when this everything bubble goes, people will look for the highest quality monies (which are gold & silver).
The commodities are starting the week off in the green.
Copper is forming a base around the $2.75 level:
The questions are, what did the crash in copper mean, and, has copper crashed enough?
We’ll know those answers soon enough.
Crude oil is back to battling its 50-day moving average:
One of the most basic technical indicators is looking where the price is in relation to the last fifty days, and whether the moving average is moving higher or lower.
In the case of crude oil, we can see that over the last year, as the moving average looked to be moving down, it has recovered and gone higher.
Is that the case again?
Like I said, this is going to be an interesting week to watch the price action.
The VIX continues to be oblivious to all of the stuff bubbling under the surface:
If I’m right in that this turns out to be an interesting week in the markets, then the VIX could get interesting too, as in spring to life again.
The Heartbeat of America Index may have a final surge higher in it:
Why could it have one final surge?
That chart above doesn’t exactly scream “blow-off top”.
Now, a market doesn’t have to have a blow-off top to crash or drop significantly, but generally it does.
The question is of a blow-off top can be seen in light of my Peak Trump theory.
Have we already peaked?
I think we’re right at the peak right now, especially if the financial press turn on the President for last week, that would get the sheeple thinking the economy is coming down because of the President.
We talk about coiled springs from time to time:
The yield on the 10-Year Note is going to have to break one way or another.
Everybody is expecting a a move higher in rates.
What if they’re wrong?
Everybody usually is wrong.
I’m expecting massive surges higher at some point, and if not, then I would look for the ESF and the FED to try and walk rates back down.
Interesting times indeed.
Finally, the US Dollar in all of it’s, well, you fill in the blank:
I was going to say glory, but the dollar lost that in 1933 and then again in 1965.
And then again for the world in 1971.
And possibly it’s reaching its glorious demise now.
Because the time that’s past since the last changing of the monetary guard shows we’re long overdue.
And it might now be set in motion.
– 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.