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900

I always get amazed when the number of NFTRH editions hits a round number. 900 times have I sat down and written these things. I love it. Especially when there is something of substance to write about. Boy, did last week give us something to sink our teeth into.

So let’s downplay the macro stuff that got us to this point successfully (okay, we’ll have to include the Gold/Silver ratio), and the stock market stuff, which is basically little changed. Instead we’ll look at what I think is a more pressing situation; interpreting what this precious metals correction is, and is not.

Note: This report focuses on the precious metals and to a degree, industrial/commodity metals. This in light of Friday’s theatrics led by silver. Next week we’ll likely return to a more balanced format.

Warsh

Meet your new Fed head:

Everything you need to know about Kevin Warsh, Trump’s pick to lead the Federal Reserve

This was an excuse to finally pop the excesses in silver, the precious metals, platinum and palladium, and some other metals.

It is obvious that my assertion that the real powers that be would not let Trump install a dupe, as I am sure he wished before the Presidential TACO had his ambitions right-sized by bankers and politicians who know where the financial system’s bread is really buttered, including both political aisles.

The Federal Reserve is and has for decades been an instrument of inflation. But they were not going to stand for some hand puppet that Trump would control at will. I think Warsh is closer to Powell than Hassett. Dollars to donuts though, Warsh will be an agent of inflation when called upon. That is because the Fed is an agent of inflation. Warsh is a hand puppet just like Powell and the long line before him. A hand puppet to the banking system and the broader government, but not to Trump necessarily.

If/as needed, this hand puppet will attempt to do what Powell, Yellen and the father of cynically over the top inflationary mechanisms, Ben “the hero” Bernanke have all reliably done on cue when it looked like the systems was going to try to purge the previous inflationary excesses in a deflationary liquidation.

Except that the inflationary machinery either seized up and broke down in the 2022 bond market rebellion, or it has been rendered less functional, or even dysfunctional.

But the hype is that Warsh is a relative hawk. Conveniently a perfect recipe for the silver >>>

Flash Crash

From NFTRH 899:

Finally, it could just come time. Every bull market takes corrections. Silver is vertical and it has just smashed into and through its big round number, 100. Gold is at 4988, about to ding 5000!

Considering these round numbers, the status of the Fed and the massively extended price of silver, we can call it what I’ve been calling it… “high risk”.

Risk not only was realized in silver, but to varying degrees also gold and gold/silver stocks and the two metals that tend to follow silver, platinum and palladium. Copper/Cu stocks got whacked, “critical”/strategic commodities and their producers got hammered, and stock markets took some pressure.

It is time to beware the gold bugs and their witting or unwitting promotions. One of which I noted discussing whether a flash crash in equities could pull down the precious metals. It’s always the fault of something else in Goldbugville, and the old “equities pull down precious metals” is a classic. To keep the follower bugs enthralled, the promo machine of the leader bugs makes them feel special, like their asset market of choice is ordained and pure.

The precious metals are not pure. Gold is a rock ripped out of the ground and refined into something heavy and beautiful, serving as a monetary anchor in a world (financial and otherwise) gone insane. Silver is a rock ripped out of the ground and refined into something less beautiful, but more widely used for industrial purposes.

The markets for these rocks became dangerous. It’s as simple as that. Price-wise, the value of the gold rock was the same 50% below the price highs as it was at those price highs. Gold’s value was stellar when its insurance was not needed at a price below the “bull gateway” of 1378, and it was stellar at last week’s high, and today’s pullback level of 4895. Gold is not about price. Insurance is not about price. Long-term value is what it is, and it’s not price. It is insurance, safety, an anchor in the storm. That’s about it.

Unsavory and speculative interests got into the markets for the metals. Silver, especially, got played. We all know it. Similar to what happened to nickel a few years ago, and platinum and palladium as well. There is a lot to unpack here, because we are in a new macro, with inflationary and geopolitical signals that could indeed paint this situation as different from the decades prior to 2022’s bond market rebellion.

Make no mistake, if this were the old macro, with the Continuum chart above intact to its gentle disinflationary downtrend, we’d be preparing for years of precious metals bear market to come. That is what happened post 2011, when the promotional machinery kept on chugging blindly bullish into a terrible bear market. The post-2022 macro likely has other more bullish ideas, but first there will likely be more pain pending any coming interim recovery rallies/bounces.

So let’s take a look at previous examples of extreme excess in metals and their aftermath. But let’s do it with open minds about what is ahead in both the short and long-term in the new macro. After that we’ll gauge the correction in the metals and especially favored Au/Ag/Cu/Ni/PGM, etc. miners/royalties/exploration buying opportunities, for both shorter-term trades and later, long-term positioning.

Needless to say, I greedily took profits on the SLV puts and the JDST gold stock hedge on Friday. As this simple chart of the BPGDM implies, Risk/Reward is much better in gold stocks, post-crash in the metals. That was quite a price… shall we say, “adjustment”.

Previous ‘Big Picture’ Extremes

For these big picture, long-term views we’ll use HLC (High, Low, Close) Area charts, which show the actual highs and lows that regular line charts and area charts do not. They also neaten the view of what a candlestick chart would show.

Studying silver (the primary excess offender) first, we note that the price explosion ripped through the measured target (92), as extremes will often do. The 1980 extreme eventually saw silver give back all of its price gains (after bankrupting the Hunt bros.). The 2011 extreme made the right side of the Cup and signaled new highs to come if indeed that was a Cup (oh yeah it was).

But what happened post-FOMC last week was one for the ages. I believe it started out with good macro-fundamental intentions and then, as markets always seem to do, it went on long enough and far enough that it dragged in the players, the FOMOs, MOMOs, trading jockeys and oh yes, precious metals promotion machine. This is all being addressed now after an overbought situation equivalent to the Hunt Bros. high.

I would not be surprised if the breakout level at 50 is tested in the coming months. This after a likely bounce. In the next segment we will review a daily chart of silver (along with daily charts of gold, miners, royalties, etc.) to define buying opportunities; opportunities that are not likely to be trades to new highs. But with the extreme downside last week, could well be opportunities for extended and tradable recoveries.

Moving on to gold, it too is overbought to the levels of 1980. That preceded 2 decades in the wilderness of a secular bear market. Today, gold is in a secular bull market, but at 4895, still much higher than it probably will be in the coming months.

HUI Gold Bugs index busted into a new bull era in the new macro. Amazingly, it has already pulled back from 941 to 781. One day we may well be buying new support at 630 (+/-). I would say it’s hard to envision a decline to clear support at 520, but just look at last week’s price swing and tell me that can’t happen.

520? Remember our original target of 500 (+/-). Well, it really went to the PLUS side, didn’t it? In 2023 that 500 area looked like a dream. A return to that area would only be a nightmare if we do not keep our heads on straight about what’s ahead.

As a side note, the red arrows above show two occasions that Huey crashed amid deplorably poor fundamentals. The current correction is starting from wonderfully positive fundamentals. However, we need to watch for an “as good as it gets” situation. One potential party pooper? The Gold/Oil ratio.

This daily chart shows the ratio got cracked on Friday, but also an intact situation. In a related matter, the miners are likely to report positive quarterly results shortly. What better instigator for an oversold bounce-back rally than that?

Platinum popped its lid as it pulled a “me too!” to the silver price. Previous extremes saw extreme downside to follow. On Friday platinum already got hit to an epic degree. Ultimately, months from now we may see the price below 1400. In the interim, as with other metals, there is bounce-back potential.

Palladium shot through resistance at 1600 and got clubbed right back to that level, which would theoretically act as short-term support. We shall see.

Copper has initial big picture support at around 4.90/lb. But also consider the 4.50 area.

Finally, Nickel barely got off the ground on this episode, so it is not nearly as vulnerable as those above on the current cycle. Two previous spikes show similar post-extreme crashes as several items above.

As a side note, the 2007 extreme and the higher extreme of 2022 are something of a long-term Cup. Sort of a junior version of silver 1980 to 2011.

Daily Charts

Silver already hit and partially recovered from a viable short-term downside objective. The way these situations often go, let’s not be surprised if there are days of ups and downs, grinding the 50 day average prior to any recovery.

Gold arrested its decline well above its SMA 50, a gap and associated support, closing back above the (orange dotted) daily EMA 20. At a minimum, gold likely has a date with the 4500 area in its future. Months from now, perhaps even the daily SMA 200 (orange), which is currently 3774 and rising. Imagine that, a gold price correcting all the way to perhaps 4000-4200/oz. one day. Yes, that is sarcasm.

HUI Gold Bugs index has pulled a Fib retrace of 38%. It is probable that it would ding the 50% retrace and the rising 50 day average before any tradable bounce back begins.

Copper Miners ETF is not of much personal interest until the 62% Fib level is registered at around the 50 day average. Individual watch items like FCX, SCCO and TECK could have their own particular levels. But generally, this is a guide for the sector.

Daily Charts – Individual Names

I could not help myself on Friday. After unloading all precious metals bear positions I re-started positions in two silver stocks, HL (which I had sold a million years too soon) and DVS (a North American silver/gold play after the merger with Contango ORE).

HL looks to the 50 day average (20.60) as the first logical support area after filling a gap on Friday. I will consider increasing the position at that level, assuming a sector bounce looks probable. One thing to watch for with respect to reversals in many of these situations is a washout volume surge, which has really not yet happened yet.

DVS made a nice jab of the 50 day average on Friday, which attracted me back to it. I am expecting some grind before a would-be recovery.

Premier gold miner AEM could be a buy at 175 for a recovery bounce/rally. I already hold it, but it’s shown here for reference.

Intermediate Royalty TFPM (I hold this also) could bounce from the 32 area, but a longer-term correction objective would be the SMA 200 (27.67 and rising).

Senior Royalty RGLD needs to decline to the 50 day average (231 and rising sharply) before I’ll personally have interest. Longer-term, if the correction extends, we’d be looking at the 200 day average, which is rising toward support at around 200.

CDE is merging with NGD to form a gold, silver and copper miner in North America. I took the profit on CDE because between it and NGD, I held too much. Support is upcoming at 19.40. Longer-term the 200 day average is rising toward support in the 16 area.

Here is one that I regretted selling, until last week. Gold/silver explorer/developer SKE got tomahawked after painting a bearish engulfing candle on Thursday. 24-26 could be an initial buy area. Longer-term, if an extended sector correction plays out, we could be looking at 20.

Gold miner EQX is another I held, and it got cracked hard on Friday. I think it can ping 13 before any rebound. Longer-term, and again IF the sector grinds out a long-term correction, we’d look to the 11 area.

The above are just a few names I either hold or have interest in. In the coming days/weeks we’ll hopefully get the opportunity to look at more items, either currently held or on watch. The next phase is expected to be a potentially vigorous bounce to test the breakdowns. That could come after more grinding down here, looking for interim lows. For safety’s sake, I’d plan for this to be part of a more extended correction in the precious metals, measured in months.

This is all in the context of an intact bull market in the precious metals and, in my opinion, the gold miners in particular (see below).

A Few Indicators

Gold/Silver ratio snapped back hard from its extreme downside. As expected, this featured both metals declining, and silver declining much harder than gold. A poor signal for the precious metals, but also for many commodities. I trust that subscribers were well prepared in whatever way they saw fit because we could see this coming a mile away, just as we saw the previous high (low in the Silver/Gold ratio) last spring.

The GSR plunged to its extreme at 43.41, reversed upward to 62.94, then faded back to close at 57.38. I expected the implied resistance around 78 to eventually be tested before the precious metals will be released from the larger correction. Any short-term positive moves for the sector would probably see the GSR jabbing down to test the low. It’s a working plan, at least.

If we see the GSR and the USD start to coordinate a rise together, it’s an indication that much of the asset world, but especially precious metals and commodities, would come under pressure.

HUI/Gold ratio (daily) is fully intact. With the miners’ earnings about to start hitting I take this as a positive with respect to the potential for a near-term bounce in the miners/royalties/juniors, etc.

Big picture wise, there is not much to dislike either. A lot will depend on how the macro-fundamentals go. If they remain on course (Gold/Oil, Gold/Stocks, Gold/Copper, etc.) then I expect a base breakout to eventually happen in the ratio. That would signal the longer-term bull market after we clear the coming phases of volatility. This is a lovely picture to my eye as it stands now. Makes me look forward to adding the best miners and royalties on opportunity in the coming months.

Well, I blew all my time on this 900th edition of NFTRH getting all dorked out on the precious metals. And for good reason! Let’s wrap ‘er up.

Final Note

I am not at all hedged on broad stock positions. Let’s keep in mind that big corrections or rallies in the precious metals often lead the broad markets. It’s just a working theory at the moment, but things are in motion and that motion could visit the stock market at any time. As yet, the charts are intact, and that is why I am taking it week by week, trying not to impose myself on the process.

Portfolios

Gold is long-term risk management & monetary value/stability in a balanced portfolio.

From last week’s Portfolios Segment:

Frankly folks, I am looking forward to booking gains and resting easy a bit. I want to be in a position, big picture wise, where the next correction is opportunity, not pain.

And that is exactly what I did.

Taxable “Savings” Account

I consider this a buttoned down group after taking profits (taxes be damned) and protecting gold stocks with the JDST hedge (now gone, but not forgotten). Really just a few favored miners, royalties and Healthcare going on here, along with Energy. Most important at this time is to get the bond holdings vs. cash proportions right.

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-correction/bear/crash), the account may get more in the game.

Trading account is no longer shown (currently no positions) due to what will be its unabashed gambling nature. SLV puts were eating me alive until the big gamble on FOMC week washed all that pain away and locked in big % profits. Still not sure it’s worth it going forward. I seriously thought I was gonna get my face ripped off on Friday morning. I will continue generally and lightly discussing such positions in the weekly notes if I think they are relevant.

Roth IRA (non-taxable, no contributions)

The chart took a bit of a hook down on Friday, as the JDST hedge position did a good job, but not the whole job. I’ve got a couple sad sack “bull stocks” in there performing poorly and no silver puts were used here. That profit all went to the gambling, mean trading account. The IRA will not incur such flash profits, nor the flash losses that have and will again happen in trading.

I’m okay with this chart right now, especially since risk had been so high and is now much lower. But as usual, I am going to do what I can to keep this chart in its methodical uptrend.

Cash is near 41%, Short-term Treasury bonds 39% and open positions 24%. About right for a still-dangerous, but reduced-risk environment. I am going to be open to playing any up/down volatility in the precious metals, but also be mindful that the many months leading up to Friday were very successful. Hence, risk management is my default until the dust settles and I have better clarity on where the short and longer-term macro pictures stand.

Cash & income-generating Treasury bonds 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.