The US government finally got together on a new $550b spending (more cost-push inflation) plan. It includes spending of money the government never had until the Fed printed it and it is going to the items noted above in the title.
In pre-market inflationists are buying silver (normal), copper (normal), Palladium (normal), Platinum (semi-normal) and gold (normal, for those who buy gold for the wrong reasons as proven by the nearly year-long correction in gold while inflation rose). But why get in the way of a gold bug and a good inflation frenzy?
So the bounce is on. As part of that the US dollar is failing the would-be inverted H&S (not fully shown on this chart) neckline and has a date with important support in the low-mid 91s. Of our 2 riders of the Apocalypse (draining the market liquidity swamp), rider #1 is now in question.
Rider #2, the Gold/Silver ratio (GSR) is pulling back but still in a posture where it would try to finish making a bottom (by holding the SMA 200 area).
If USD and GSR break down then the answer will likely have been that the Continuum was right all along (our question of late was who was right, the 30yr yield’s projection to bottom, form a right side shoulder and turn back up or the combo of USD & GSR?). Recall that a new upturn in the Continuum would likely involve new inflationary pressure one day possibly morphing to STAGflationary pressure.
From yesterday’s update…
Gold’s daily situation is still in channel breakout mode. That is also the handle to a bullish big picture Cup. But let’s curb any enthusiasm unless gold clears the SMA 50 and SMA 200. Still, it’s in better standing than silver. The wider implication of this is that if the Gold/Silver ratio continues to rise there would likely be trouble in the inflation/reflation markets.
Gold is bouncing right to the moving averages as gold bugs cheer spending that is aimed to boost the economy through inflation. Not good rationale. But we do have Stagflation out on the horizon as a distinct possibility if not probability, and that would be positive for gold. So, let’s see if gold can take out the moving averages and the July high.
Silver held the very important support level noted in the update linked above.
In other words, it is at an important support level right now. It’s important, but also suspect with the price below the SMAs 50 and 200.
And there goes silver, bouncing to those moving averages, with the SMA 200 basically matching up with the underside of the long-term resistance zone and the SMA 50 right in the middle of it.
Bottom Line
We have had a macro decision point upcoming. To put it in picture form it was a decision between the potential daily chart bullish inverted H&S on USD combined with a bottoming Gold/Silver ratio vs. the original message of the 30yr yield Continuum (monthly chart), which has been for the yield to stop declining amid the summer cool down, put in a right side inverted shoulder of its own and rise along with the next phase of the inflation, which could eventually morph to stagflation.
The US dollar could find support in the low-mid 91s, considering that the GSR is still in bottoming mode. But the 60% lean has been toward renewed inflation. This morning’s activity may boost that lean a bit. The inflation trades needed to get cleaned out before the government dropped this pile of pork upon us. My tin foil hat wearing self thinks that is at least part of the reason Fed heads (with Yellen in the side car) publicly fretted so much about inflation (that they created) prior to the cost-pushing inflationary news of today.
If the inflation works toward economic goals and remains the ‘good’ kind of inflation for a while, gold should under perform at best and silver may bull or it may continue riding in gold’s sputtering side car. If the thing morphs Stag sooner rather than later then all bets are off and a rationale for the precious metals would come into play. For now, gold and silver remain just another asset class, at best, among many getting the inflationary bid. As long as that remains the case, gold miners can and will bounce, but they would not benefit from the inflation being pushed into the economy and would not benefit fundamentally until signs start showing up that the inflated economy will ultimately fail.
