FOMC came. FOMC laid a .75% egg. FOMC rode off into the sunset until September. Meanwhile, signs of global economic contraction continue to crop up as the Fed fights the last war. As repeatedly harped upon, contraction is the best backdrop for gold mining stocks because it pressures central banks to consider loose monetary policy, or at least to back off the hawk routine while gold would out-perform cyclical assets, including mining cost input commodities and resources.
The fly in the ointment of that story is inflation. The Fed will fight it because it has to fight it, lest it lose control. But that is a story for down the road a bit.
The favored strategic play has been that the Fed drops its July rate hike on the market and may be done. However, if ‘inflation trades’ like commodities and signals like inflation expectations, Treasury yields and the Silver/Gold ratio rise strongly enough it may compel the Fed to hawk again. That remains to be seen. But there is a window now. That window is July 27 to September 21, when the micromanaging market regulator eggheads meet again.
As of now the wiseguys at CME Group see a .5% hike in September, but a lot can and will change before then.
We are not yet in a phase where gold stocks are considered (by me, at least) to be anything special. They can certainly rally along with other markets during the time window noted above, and we will gauge macro fundamentals along the way and call what we see, whether a unique environment for gold stocks or not. As of now, it’s not. The broader stock market is still on its relief bounce/rally and we have upside projections in place (ref. last several NFTRH reports). *
For all the technical reasons noted to date there have been few signs of a real bottom. Preferred signs would be a grind downward (already in play) and basing situation, or a tank job/crash, which is usually how the sector ends corrections.
But the sector has had an oversold situation, seasonal low (on average), deplorably over-bearish sentiment, contrary bullish silver and gold CoT and macro fundamentals in the process of turning positive. So a strong bounce/rally can easily come about in the time window even if the larger correction/bear phase is not yet over.
Moving on, let’s update the situation in gold and silver. Gold (futures) is up nicely this morning, taking out the daily EMA 20 and tentatively, the first resistance level.
Here is the weekly chart showing just how tentative that is. But okay, the relic does have potential to put on a big rally. I have not marked it on the chart but if gold clears 1750 the next resistance is at the 1800 round number. Beyond that, the objective would be 1880 to 1920.
As for the star of our show, silver held support and bounced hard.
The first objective is 21 and then the real proving ground is the massive resistance at 22. Recall that this is the area we were watching in May as silver rallied, failed and we had to go ‘hands off’ again on the precious metals. Meet the new boss. Same as the old boss. If the time window into September is what I think it is we will watch for 22, and if it is something special, perhaps a rise to the channel top in the 25s. But let’s just stay grounded for now and call 22 the objective.
* As a side note, if you have an opinion one way or another about the format of NFTRH reports, please do consider leaving a comment to this post. A few subscribers have expressed a preference for the ‘online’ format, where NFTRH is presented in the context of a website post (it would actually be a site page, as opposed to a post in order to keep it password protected forever). It would be easier for me to do it ‘online’ and that is my preference. But I think I already know what is going to happen, and there will be differing opinions. But I am considering going that route as it streamlines the process.