From NFTRH 659’s Precious Metals segment:
“The mechanics are that as long as the Cup’s handle remains in breakout mode the bias is up and any thoughts about a final washout are just that, thoughts (or wishes). But if the handle break fails then be ready for the prospect of a drop to or just below 1600 and what could be a table pounding buy amid the glory of gold bugs scattering far and wide.”
This morning the breakout is failing. Silver, while still technically intact, is also getting hammered along with copper and I assume, other aspects of the inflation trades.
Now we begin the ritual of the running of the bugs, including a cheerleader named Larry that the tweet string above was originally in reference to. If this is not just a post-FOMC head fake we are going to hear battle cries and calls to action coming from the gold
cult “community”. We are going to hear about how “they” are smashing gold. We are going to hear angst far and wide across the most strident and dogmatic neighborhoods of Goldbugville.
Gold led the inflation trades to the upside and if this follows through to a consciousness altering flush per my tweet, the opportunity could be epic. That tweet was public, and the target “to or just below 1600” was per NFTRH 659. Could this be a whipsaw shakeout move? Sure. Am I going to favor that view? No. I am going to raise more cash not only in gold and silver stocks, but likely across the inflation trades (on which I am light, anyway) and potentially other areas.
Often times FOMC week ruffles some feathers and then things settle down. This time it appears that the realization of the poor contrarian sentiment situation (everybody long-since knows inflation is here, unlike a year ago) will trigger in the precious metals, commodities and eventually many or most stock sectors/indexes.
If things go the way they usually do, gold will bottom first and lead the next phase of the inflation. It worked this way in 2001, 2009, 2016 and 2020. The reason I am not flipping bearish (other than potentially for an interim phase) on the broad macro is that I don’t think the inflationary operations are over. I think they are getting a much needed cool-down, a sort of expectations management after inflation expectations got too hot.
The 30yr yield is down today, which is perfectly to plan. The plan is for a right side shoulder to finish up on the Continuum. The purpose of this shoulder is to tamp down all that inflation hysteria so that… the inflation can continue! We’ll leave it to future analysis about whether or not to project the potential of an eventual 4% yield.
But right now, think about slingshots. Think about how every action has a reaction and this reaction is projected to have another reaction to the upside. In other words, the power for a try at the EMA 100 & 120 limiters, let alone 4%, was going to come from a resetting of expectations.
Don’t personalize the process. Dogmatic gold bugs will personalize it. In fact, they SELL emotion and rationalization. They sell ‘us against them’. They sell good vs. evil.
I recommend all of that be tuned out in favor of a simple macro picture of a reset (not the “great reset” that gold and bear hypesters talk about, but a reset of the current overly-frothy situation) that our simple ‘Continuum’ indicator had projected.
The alternative is that the yield will not make a right shoulder but instead fail into a deflationary resolution of the year-long inflation. It’s possible, but it is not the favored outcome. The favored outcome is that here, post-FOMC entering summer 2021 the macro is going to get slapped upside the head to refuel for the next phase of the inflation.
Again, we’ll watch gold first and foremost, because if history is a guide, it will bottom first (at least among the inflation trades). At some point, if inflation signals not only top out but start to fail, the Fed is going to go back to the only real trick in its bag, inflation and/or wooing expectations for higher inflation.
As a final note, with the inflated economy still firm (and gold/miner fundamentals still not good) if yields and inflation expectations back off as expected, Tech and Growth could be a wild card. I am not going to assume they will tank. Nor will I assume they won’t. Hence, wild card for now.