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Reality is One Thing, Markets Are Another

As noted last week, I am hearing all too much talk about a market crash to feel comfortable in a bearish view beyond the very short-term. Yes, the national debt (along with debts around the globe) is increasing with no end in sight. YouTube’s algo keeps feeding my TV video interviews of deep market thinkers talking about the coming crash. CNN even talked crash with 1929 author Andrew Sorkin. Ooh, scary!

It was October, after all, the most overrated, supposedly bearish month of the year. Well, nothing is foolproof, least of all market seasonals, but we are now in November, the traditional beginning of the supposedly bullish period that ends with “go away in May.”

The October crash talk is a “tell” that a crash is probably not imminent. Here is another. While I take issue with minor elements of CNN’s interpretation of the Fear/Greed index, you just don’t tend to get market crashes from all-time highs with sentiment readings like this. Market crashes tend to occur after enough bearish activity has already happened to drive mass sentiment to fearful.

Another “tell” is that the Fed, that enemy of gold and honest money/monetary systems so clearly on display after 2011 (see again last week’s report, NFTRH 886, for a look down that Operation Twist-instigated rabbit hole), is getting up to some of its old tricks. Sure, they dropped the funds rate again last week and Powell is talking a little bit tough about the potential of no cut in December. A lump of coal for investors?

Not really. Out the back door the Fed has ceased its Quantitative Tightening (QT, which has driven the Fed’s balance sheet holdings downward since 2022) and will now either embark on a market pleasing expansion of its balance sheet through forward QE or at least stop it from declining (depending on what they do with other bonds, like MBS, as they bring more Treasury bonds onto the balance sheet).

The Fed will be going back into the bond market and liquefying the system by buying Treasury bonds. You can bet their aim is to do what they always eventually get back to, which is inflate a system that runs on inflation with a side benefit of helping the government not look like quite the chronic fiscal inflator that it is. In other words, monetizing this debt is how they will allow the government to at least partially inflate away its debt.

The Fed claims that it fights inflation, even as it is inflation’s creator. From Alice (by way of my left arm):

“And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?”

There is a reason that this quote is tattooed on my arm (to go with lovely images of Alice, the Red Queen and Rabbit on my right arm). The Wizard, pictured above, is going to pull his levers and blow his smoke to whatever degree necessary to try to keep the bubble* going.

Of course, the macro changed in 2022. My theory has been that these manipulations will not work quite so efficiently as they did in past, due to the rebellion by the bond market, which punched yields up above our long-term trend marker, a big picture inflationary signal.

But in the interim, as we projected, yields have been bending downward even before the Fed’s termination of QT. Perhaps it was the bond market’s anticipation of that well telegraphed termination, as opposed to gathering disinflationary market signals. Here we consider the possibility that the disinflation we anticipated might be on its last legs.

Perhaps the bond market is anticipating that the Fed will try to create a disinflationary macro picture to bring she who shall not be mentioned in the Gold Bug-O-Sphere, but will be mentioned here, Goldilocks, to the fore. In my opinion, from here any further disinflation story that may get a “Goldilocks” interpretation will be an ill-fated and short-lived thing.

This is not the post-2011 phase by any means because the structure of the bond market is completely different with the Continuum’s upward trend change in yields.

We have managed to squeeze three childrens’ stories into one segment and that is appropriate. We are, and for decades have been down a rabbit hole of incredible possibilities as the Wizard pulls his levers with the intended result being a macro manipulated (e.g. Ben Bernanke’s epic hit job, the 2011 inflation “sanitizing” Operation Twist) to be not too hot and not too cold, but instead “just right” for Goldilocks’ consumption, with respect to inflation.

I do believe a strong “tell” on such a phase (fleeting though it may be) would be a temporary flattening of the 10yr-2yr yield curve. Again, please reference NFTRH 886, linked above, for more details on why this could be important bond market signaling for gold, silver and commodities on the one hand, and risk-on speculative markets on the other. We’re talking short-term stuff here.

Also, see the segment below this one for an alternate view showing that while I may turn out to be right about a flattening and then once again steepening yield curve, the internal bond market dynamics and deflation/inflation view may be in transition sooner than previously expected.

As yet, the curve is only slithering sideways. I’ve noted the area below which to really start thinking “flattener”. By extension, if we see “flattener”, we also see “Goldilocks” potential, in the interim. If the curve holds here and resumes steepening then forget Goldilocks and prepare for market liquidity problem or a hell of an inflationary situation. Again, we’ll add more context in the next segment.

And we are still talking “interim” here. But if the market is going against you, “interim” is not going to feel so temporary while it is inflicting damage (inflationary or deflationary steepening) that participants are on the wrong side of. Going the other way, it may feel like permanence to many, if it is injecting joy and euphoria (Goldilocks flattening).

* A reminder that in my view, the real bubble is not the stock market, AI or other manifestations. The real bubble is in decades of unfettered monetary policy designed to inflate the system by non-free market means through bond market manipulation, to keep asset prices, and ultimately debt, rising at all costs (and it will cost).

Tweaking Yield Curve View

When I think about the Fed ceasing its QT operation, I think about liquefied markets. I don’t think about liquidity crises and deflation. Remember the curve can steepen under deflationary or inflationary pressure. While we watch for a possible interim curve flattening, which would give Goldilocks a brief moment to gulp down the bears’ porridge, I want to second guess my view that a subsequent steepener could bring on a liquidity crisis in the interim.

Here we need to keep an eye on liquidity indicators like a combo of the Gold/Silver ratio and USD rising together. If they do, we’re looking at a deflationary steepening.

But the play could morph inflationary sooner than I’d previously been anticipating. This view shows that for a large part of 2025 the yield curve (orange) has been going sideways with nominal yields declining. That has been our anticipated play and it is disinflationary.

But if the play will end sooner rather than later, and if the curve starts to flatten (it has not yet done so), Goldilocks could live, maybe for a year-end party. But a pivot within the curve from deflationary to inflation would need something to pivot from, and it’s been disinflationary since the spring. So maybe the process is well along and the next inflation phase is closer than I’d originally planned.

We are deep in the theoretical right now. But you’ve got to gauge from a rational standpoint, and the fact that the Fed is shifting from QT to some form of QE while maybe pretending to be tough on the Funds rate should make us aware that it could “inflation all the way, baby!” (in the Q4, 2008 words of my late friend Jonathan Auerbach). Subject to a possible interim Goldilocks rather than the previously anticipated liquidity problem.

Frankly, I am looking for reasons to be bullish on commodities (see segment near end of report) and this could be such a reason. If the above sounds confusing it is because this macro is confusing, or at least complicated. Please do not hesitate to ask if I am unclear about something.

Precious Metals

A developing, and temporarily anti-gold Goldilocks story as illustrated above may just be a figment of a previously battered gold bug’s imagination. But my gold-bullish view of 2011 was battered into submission by Bernanke’s Operation Twist and associated market manipulations in 2012. From there we had to deal with reality, as opposed to idealism, and call it what it was: victory for the forces of remote controlled, manipulated markets.

Evil, in my opinion, had won.

Today, there is one big difference in the larger macro, and it is a big-picture driver. The trend change in long-term interest rates. There are also two distinct potentials for gold, one temporarily bearish as per a Goldilocks theme noted in the segment above, and another quite bullish per the green shaded paragraph below.

Regarding our policy heroes, my theory has been (and continues to be) that what worked so swimmingly in the past will not work so well in the new macro. The bond market rebelled in 2022 after all, and you’ve got to believe that neither the Fed nor the government wanted to see that happen.

This new regime of higher interest rates could make them both wounded and dangerous animals in the near-term, however. Dangerous to whom? Why, dangerous to me and dangerous to you, Mr. & Mrs. Goldbug. Dangerous to the symbol of honest money and economy.

However, there is a competing view in play. That view is a much happier story for gold bugs. It is the view that the Bessent-led Trump administration could revalue gold to a rightful level (per the sublime debt levels that have been allowed to accrue for decades). Let’s believe that when we see it. In that regard, this also assumes that America has the gold it is supposed to have. There could be several reasons why Trump suddenly STFU about auditing Fort Knox, but it was curious.

So the above illustrates part of the reason I am straddling long positions with short hedges. I just don’t know if the correction is over, and I am suspect of the macro in the “interim” (a word I’ve been using for months now).

So playing it straight, let’s just look at some charts, beginning with a couple indicator charts. BPGDM has aborted its long-standing risk signal in favor of a ‘much reduced risk’ signal.

The sector has not shown any signs of breaking the correction from the standpoint of miners leading the metals. Indeed, a solid LOW RISK signal could be the combo of the chart above hitting 35 and this chart hitting its 200 day moving averages. Not a prediction, but for a high confidence “correction over” signal, a preference.

Gold has already done good corrective work to below the 38% Fib retrace level. All things being equal, this is a normal correction already in the books. All things being not equal, like a change to flattening in the yield curve for example, and the correction could ultimately go much deeper.

The 50 day moving average, coinciding with the 50% Fib, has not even been reached. The preference for the PM complex, per my view (not to mention per cycle guy Hammer), is for a more severe and quickly decisive correction now rather than an extended topping grind, which could be more bearish longer-term, IMO.

One more hard down could work wonders for the bull case, in my opinion. You would think that the 50 day average rising to the 50% Fib (3842) would be a minimum correction objective.

In the event that things could really get off the hook in the coming weeks, note the 200 day moving average rising toward what Hammer calls a table top and I call very clear support at 3400+. Plus a gap at the launch point. I think a serious Goldilocks scare would need to be put into the Bug-O-Sphere for such depths to be reached. But if it is reached one day, we’re probably looking at an epic buy signal.

Silver, as well, has gotten cracked hard, but not yet reached preferred downside objectives for a clear call to end the correction. Per the orange grid at right, it is still bouncing (retracing), having put in a 38% upside Fib retrace, with the next possible objectives being 50% (50) and 62% (51).

Beyond the bounce, if the correction is still in play we noted that like gold, silver has not even dinged its 50 day average, let alone pulled back 38% (44.50), 50% (41.40) or 62% (38.20).

The miners (GDX) did bash the 50 day average, fall through it, reclaim it and now perch atop it. What’s more, GDX almost ticked its 50% Fib. As GDX nests there, slightly oversold, as a person holding short (partially hedged), I am concerned about a couple things (after the chart).

• The above-noted nest atop the SMA 50, and more than that…
• The view of a sector currently reporting positive Q3 results, as expected.

This is why I added a few items against the hedges. With the reduced risk shown in the BPGDM at the top of the segment, I don’t have the downside conviction I had a couple weeks ago. It’s just that with hedging having finally paid off nicely (after periodic futile attempts), I can mentally afford a little patience here to see if we get a bigger drop to resume and conclude the correction sooner rather than later.

Bottom Line

The correction is still technically in play. From the standpoint of a precious metals bull, we’d want the correction to be deeper and quicker, rather than extended, grinding up bulls and bears.

That first thing would be a flush of the FOMOs and MOMOs, and healthy. The second thing could be the process of topping if evil is to win out again on a bigger picture (that’s emotion speaking from experience).

A third possibility is that per Old Turkey, “it’s a bull market, you know” and is under no obligation to drop to a convenient level for an ultra low risk “buy” signal before resuming.

There is noise in the picture having to do with potential Fed/Treasury manipulation toward a gold-bearish “Goldilocks” scenario and alternate noise having to do with official upside revaluation of gold.

What’s a market participant to do? Well, the situation is big picture bullish until proven otherwise, so this participant holds core positions and in the short-term remains ready to hold or even increase shorting or alternately, off the bear positions if the market looks to either resume the precious metals bull or even make a bigger surge upward as part of a larger topping process.

U.S. Stock Market

SPX is on a normal pullback, post-FOMC. It’s probably going to fill a couple downside gaps created by dumb FOMO’ing money, pre-FOMC. Beyond that, the measured target from the spring A-B-C correction pattern is what it is. It sure would fit well with a Q4-Q1 “Goldilocks” pump. We shall see. Just spitballin’ here and trying to create logical narratives.

NDX continues to lead SPX and SOX continues to lead NDX. This is indicative of intact speculative/cyclical spirits. I saw an article by someone calling the top of the AI bubble because META got creamed at earnings. Easy there, Sparky. The market graveyards are filled with entombed ‘bubble top’ callers.

Risk is still on by the SOX > NDX > SPX leadership chain, despite the little post-FOMC hiccup last week.

I have not included this chart in a long while because its signals tend to either extend for a long while (rendering it almost useless as a near-term indicator) or react in real time with the stock market (rendering it useless as a warning indicator).

However, after an extended decline in Equal Weight SPX vs. Headline SPX, indicating poor market breadth, the market did finally resolve bearish in 2020 and again early this year with the spring correction (note blue shaded divergence zones). While not a reliable timing indicator, poor market breadth is an unhealthy market indication, and a long negative divergence is in effect.

In support of the SOX > NDX > SPX message above, risk is still on by the indication of relatively defensive Healthcare continuing to be drubbed in relation to the broad market. Despite that, I did add some more H/C exposure, per the in-week notes and a discussion of holdings below.

Another risk-on view is the drubbing Consumer Staples (the stuff people need) are taking vs. Consumer Discretionary (the stuff people want).

Bottom Line

This mess continues to be on a bullish view, despite a pullback that began last week and could continue for a bit. Now think about an always conniving Fed and its market-positive mission* and the SPX 7400 measured target does not seem so unreasonable. I do not plan to short this pig for those reasons. My gay and sunny personality tends to get soured badly when I actively fight evil and lose. I learned that lesson many years ago.

I’ll short upon technical setups or possibly upon registering upside targets, and likely not until; unless I am hedging for some reason.

* They claim to be about price stability, but the reality is they are agents of asset price inflation, including and especially the stock market.

Global Stock Markets & USD

With U.S. markets pulling back to end the week, global markets pulled back even more.

Why? It’s as we’ve been noting for years now; relative global performance tends to run contrary to the U.S. Dollar, King Dollar, heretofore currency hegemon to the world. Okay well, USD is losing that status in the big picture macro, but is on a bounce. That is reflected on the chart above.

As to USD, objective #1 is resistance around 100, toward which the 200 day moving average is declining. A failure there could re-start the party in the precious metals and commodities/resources, along with global and US stocks.

A break through would target 101.70 to 102 and could bring pain to much of the macro (especially if gold is also rising vs. silver). Or obnoxiously enough, we could see U.S. stock markets benefit first and foremost as Goldilocks pulls in capital to the deck of the USS Good Ship Lollipop (with a big assist from Team Evil). *

* I am using a lot of imagery and inflammatory language in this report. Let’s just go with it. I was affected and to a degree burnished by the Bernanke years of successful market manipulation.

Meanwhile, on the surface of things, Global (ex-U.S.) is just fine. It is testing the channel buster and its short-term moving averages. It could easily slip for a test of the SMA 50, especially if USD continues to bounce.

Commodities

The commodity ETF continues to bang resistance, thus far unable to break through.

This is part of a long and bullish looking consolidation…

…with an implication of significantly higher prices to come if it busts through and holds.

Our plan is that on the next inflation phase, a wider group of commodities will join gold to the upside. How might that be indicated? Among other things, by our old friend the Silver/Gold ratio finally breaking its long-term downtrend. To do that the SGR needs to take out the high noted with the red circle (.0137).

I poke silver bugs for their fervent boosterism, but I think that given the big picture inflationary macro indicated by the Continuum’s 2022 upside break in yields, this will come sooner or later. When it does come it will probably favor the precious metals, but also many more commodity and resource stocks.

We’ve already been on that play, selectively, for much of 2025. Especially in commodities identified as critical or strategic to one degree or another (REE, Cu, PGMs, u3o8, etc.). But here let’s recall crude oil, which has about a 2 year lag to the gold price (a historical analog, with all due notice that analogs can and do fail), and Industrial Metals. The down and dirty stuff.

You would think that the GYX/Gold ratio is going to rally from this extreme. Its trigger could be a “real”, as opposed to still currently theoretical, long-term breakout in the Silver/Gold ratio.

Another trigger would be the TSX-V/TSX ratio remaining in its uptrend and rising again after this pullback completes. This stuff could be closer at hand than Goldilocks may think. *

* While I think Goldilocks (if she comes about) could temporarily be most adversarial to gold, she could also impair commodities as well. That is her traditional role, at least (inflation “just right”… mmm). Gotta love fairy tales.

Bottom Line

Our next big trade or investment could well be back to precious metals, with silver leading, and commodities, which would follow in the wake of the Silver/Gold ratio. I am a stickler for proof, however, so I want to see a Goldilocks environment proven not to be in play and I want to see silver take out the milestone noted above relative to gold. I also want to see the TSX-V/TSX ratio hold the lower bound of the green support zone noted above on this bullish looking consolidation.

Discussion About Holdings

Rather than waste time with little blurb notes beside each holding in the portfolio views below, I’d rather just write about them here. Explain where I’m at and add more color to the raw list of items.

As noted above, I slithered further into the Healthcare sector, adding Pharmas BIIB (a previous Hammer chart call off a bottoming setup) and REGN, which had been on watch and almost bought the day before it popped on earnings. Why of course! FOMO, baby. These join GILD, already held. In medical devices, I added STE to currently held MDT.

This represents additions in a more defensive sector (H/C) against Tech and Semi stocks still held (ALAB, AAPL, ZS, FTNT and QCOM) and new additions (IOT, MRVL).

Favored gold stocks are still held with the odd silver or silver/gold stock in there for good measure. NGD gave a good lesson reminding me why I held it through earnings, as had I not I’d have serious FOMO if I got too cute and took the profits on a favored item. I did trim it and BTG, RIOFF and EQX as part of good practice, however, as they grew too big. Speaking of BTG, it then got hammered on Friday for some unknown reason (to me). Hence, it was good to have trimmed some profit out of it. What I partially gave up in NGD upside I saved in BTG downside. Gotta love markets, eh?

Added last week were quality royalties RGLD and WPM, which each had good pullbacks. They go with one of two TFPM positions still held. Basically, the gold/silver stocks I hold are the ones I want to hold. For my purposes, not for some weird allegiance to the sector or gold bug community.

If the play ends up being “correction ended” or “ends sooner rather than later” I also have KNTNF (KNT.TO) on watch for buy back, along with MAIFF (MAI.V) for buy-back. MAI has turned into a decent little trader for me, but ideally it is getting its funda act together and will be a hold.

I also have my eye on AGI, a would-be second AEM position, B and either WDOFF (WDO.TO) or WRLGF (WRLG.V).

I added IDR back in the REE patch, took a quick profit on LYSDY, on watch for buy-back and could add back a 2nd MP position. Watching SPPP along with PALL and SBSW in the PGM patch.

TECK, BHP and others in the industrial metals/copper patch are on watch.

I hold two Energy stocks, CVX and XOM. If oil catches on and the sector (XLE) takes out the resistance area noted here, I’d like to expand the sector holdings.

I exited the Uranium patch and neglected to get back in. My usual suspect watch items are URNM, SRUUF, NXE, UEC and especially UUUU (he of the REE processing capability as well). I don’t feel like chasing at the moment, although UUUU is quite on watch as it consolidates downward from its previous hype.

Finally, a note about the TSX-V listed “basket” holdings, AKA highly speculative mineral exploration stocks. I want to make sure I am not getting too cute being out of these potential future bottle rockets (or submarines, or lottery tickets) as the ‘V’ consolidates with a bullish look per the chart above.

I’ve held on to TLO.TO (TLOFF, not ‘V’ listed, but work with me here), MMG.V (MMNGF), PGE.V (PGEZF), OGN.V (OGNNF), AE.V (AMEGF) and even bought back AIR.V (CLRMF). But I would like to eventually increase these positions and add back the likes of BTT.V (BITTF), DBG.V (DBLVF) and others in the speculative minerals patch.

Portfolio

Gold is and has been viewed as long-term risk management & monetary value/stability in a balanced portfolio.

Taxable Account

In order of position size.

The taxable account carries high cash levels as long as cash and equivalents are paying out. This is considered a savings account of sorts, rather than a speculation or even investment vehicle. The goal is to speculate around the periphery. In another market phase (e.g. post-crash), the account may get much more in the game.

Trading Account

No positions.

Roth IRA (non-taxable, no contributions)

The chart held the designated lateral support and ticked up a bit last week. More of this will be required for me to remain positioned for a year-end broad rally, potentially including precious metals and commodities, but also just maybe per Goldilocks.

Cash and short-term Treasury equivalents are around 75%. I see viable bull and viable bear outcomes in the markets for Q4, but due to existing trends am leaning bull. That includes precious metals if the correction proves to be sharp and decisive rather than choppy and drawn out.

Cash & income-generating Equivalents are at levels that are right for me and my real-world situation. Your situation is different. Cash will be adjusted as needed.

Refer to the In-Week Notes under the NFTRH Premium menu at nftrh.com for market talk and occasional trading info, if interested. Also, you can follow on X @NFTRHgt for notice of updates.

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Notes From the Rabbit Hole (NFTRH) is a weekly market report in which we provide analysis on financial markets.  We make every effort to provide accurate and high quality content, but this analysis ultimately represents our opinions and these opinions are provided without warranty or guarantee of any kind.  See full terms & conditions of service under the ‘About’ heading in the main menu.