NFTRH; Gold, Silver, Commodities, Stocks, Indicators & USD (high priority)

Gold & Silver

Yesterday we noted the 2017 low of 1204 as the next important support level for gold. It has dropped to 1216 this morning. We noted that silver may be about to lose its December 2017 low as well (it did) and now the big July 2017 swoosh down to 14.34 comes into play. That drop (and reversal) indicates support anywhere from 14.34 to 15. Silver is currently 15.26 in pre-market.

For context, the summer 2017 correction ended in climactic fashion as they so often do in the precious metals. Silver reversed hard from 14.34 and 9 weeks later was trading at 18.29. That’s a nearly 30% move.

You know that I am not a gold cheering squad member. But I have to report what I see and in this case, feel. What I see is a climax in the making and what I feel is gathering bullishness. I guess this is the warped way you have to be to navigate in the precious metals. On Twitter yesterday I noticed a couple of mining guys – including Brent Cook – posting bearish about gold. Well yes, it is bearish and that is the point. Sentiment is in the dumps (right where you want it for gold bulls) and more and more advisers are feeling the pressure to tell their followers what is in line with reality. Gold is bearish!

That’s bullish. But we await the pivot points in both metals. It’s how this sector rolls. No pleasure without pain and often the best pleasure comes directly after MAX pain.

US Dollar

Well Uncle Buck is being plucky and has pushed things to the limit as the pre-market daily chart shows it knocking at the recent highs.

The weekly chart shows how important this juncture is. If current resistance is taken out USD targets around 102.

The monthly shows that to be a test of its cycle highs.

Now think about these two public posts from yesterday…

Gold/Silver Ratio: Rising for a Month Now

Palladium/Gold Ratio on Verge of a Warning

It will be very important to see what USD does now because a failure by the buck could go hand in hand with a resumption of the inflation trade – probably beginning with gold and silver, which have led the bearishness in commodities and some global markets – but a breakout could go hand in hand with continued pain for the various inflation trades.

Now, here is where it gets complicated (and it sure is not nearly a simple as the inflationary gold analysis cartoonists would have us believe). A rising gold/silver ratio and a rise in gold vs. cyclical metals and assets would normally go with a rise in the world’s senior currency, which had been used as a dupe for the anti-USD inflation trades. In the era of fiscal reflation, that is significant and a strong USD would hurt not only gold (initially, until its flight to safety/risk ‘off’ characteristics take over), commodities and EM/Frontier stock markets, but also US stocks that benefit from reflation and its weak dollar component.

Bottom Line

If USD holds below resistance and declines (as we’d so far incorrectly been favoring) the precious metals would likely get a good rally and the inflation trade stuff would likely get some significant relief. But as has been the case for years, this would only be bounce material for the PMs and much of the commodity and Emerging equity stuff appears broken, technically. So we’d be looking for ‘bounce’ and nothing more, pending incoming information. Remember that USD’s rally has come from long-term support, and we’ve only been looking for a routine pullback to test shorter-term support levels.

If USD breaks through resistance and holds it, we’d still look for a low in gold and silver; quite possibly a dramatic low. We’d need to have patience as the inflationst bugs get weed whacked. We’d also become more bearish on commodities and the inflation/reflation trades, including the US stock market or at least its segments dependent upon a weakening dollar.

The thing to remember here is that the best investment case in counter-cyclical gold/miners is when liquidity is being withdrawn from the cyclical, risk ‘on’ world. All we have to do is reference Q4 2008 for an extreme version of this situation. I am not predicting a 2008-like event, but the dynamics in play would be similar. There was a reason that event was so epic for would-be gold stock bulls as inflationist gold bugs panicked and puked and those who understood that when USD plays a role in wrecking the macro it is time to get aboard, assuming the macro funda are coming in line, which they likely would eventually.

Meanwhile, we need patience as the process plays out. We’ll either assign inflationary/liquidity or deflationary/anti-liquidity to it over the coming weeks.

Admin Note

Okay, it’s a dynamic looking day and I will be away for a good chunk of it. That always seems to happen in the summer; specifically in July. I promised my daughter something and I am going to keep that promise, market or no market. So do not interpret any trading or lack of it in the Trade Log today as being comprehensively done by someone watching the market closely because that will not be the case for much of today. As for updates, they will likely not happen either. I hope this pre-market update gives us enough context for now. Let me know if anything is confusing or convoluted.