Gold & Silver Begin To Climb The Most Epic Wall Of Worry

SD Midweek: The stock market may be at fresh, all-time highs, but there’s reason to get bullish about gold & silver. Here are the details…

Let’s begin by looking at the Wednesday through Friday events calendar:

The week’s events so far have had little effect on the markets, but the volatility will begin to ramp-up, beginning today.

Look to multiple data releases on the housing and real estate markets to give us a read on whether we are truly at an inflection point of downward price pressure or not, but more importantly, look for market movement today at 2:00 p.m. EST when the latest FOMC meeting minutes are released, in addition to possible Friday morning market prep-work in anticipation of Jerome Powell’s speech at 10:00 a.m. EST.

The Fed events this week are of particular interest especially because of the increasing tensions between President Trump and the Fed in general, and Fed Head Powell in particular.

For a little over a week now, I have said to be on the look-out for new all-time highs in the stock market.

Yesterday hit new all-time highs in not one, but two major US indices.

First, there is what I like to call The Heartbeat of America Index (otherwise known as the Russell 2000):

That is a pretty impressive candle at the very end in what has basically been a sideways (topping?) pattern since mid-June.

Not to be outdone, the S&P 500 also hit fresh, new all-time highs yesterday:

That is one massive double-top drawn out over most of 2018.

The Nasdaq and the Dow have not played nice, and as such, they are sitting in time-out, having missed the opportunity for new all-time highs.

Could they still get there?

They could, especially the Nasdaq, but notice the S&P did not go out on the day’s highs.

In fact, the S&P faded the move:

After hitting an intra-day all-time high, going out on weakness is not a good sign.

The pressure for the stock market is on now, especially when we look at the VIX and the dollar.

Why?

Increasing complacency for the better part of the last six months helped the stock markets to make those runs:

Yet as we reach the end of August, and as we move into September and October, we are hitting months that have not historically been kind to Wall Street.

In other words, we may finally have peaked with the “as good as they’re gonna get” stock markets.

Whether what follows a crash, a grind lower, or simply an agonizing fade is something we will understand in time.

I’m not making any calls on the stock market for now – because the market has not been kind for those calling for a crash.

I will say, however, that I think the next major move in the stock market is down, not up.

This will be especially the case if the dollar, which has helped boost the stock market to reach these fresh, all-time highs, is topping.

The last four days have not been kind to the greenback:

And while it is hard to know exactly what the President wants, even though he has the full weight of the Exchange Stabilization Fund that he can put to work, it is safe to say that we as a nation are back to a “weak dollar” policy.

It hasn’t been pretty establishing this policy, however.

In January, at Davos, President Trump was a “strong dollar” guy. In mid-July, he was a “weak dollar” guy, last week he was a “strong dollar” guy, and this week he is a “weak dollar” guy again.

Like the stock market, I think the next major move in the dollar is down, not up.

We shall see.

The yield on the 10-Year Note is nearing the bottom of its range:

While yield has basically been range-bound between 2.8% and 3.0% since late January, we are now at a point where yield breaks-down or starts moving back up to 3.0% again.

We will know more by the end of this week.

So many factors are weighing on the bond market right now, that it is almost harder to call than moves in gold & silver.

Just a little bit of factors weighing on the bond market:

For example, the case for higher rates:

  • Fed raising interest rates
  • A Fed not buying but allowing bonds to mature (i.e. net sellers of bonds)
  • Massive US deficit spending, more than previously thought (i.e. US selling more bonds than thought)
  • US selling even more bonds, apart from deficit spending, to service rising interest rates (i.e. paying off debt with debt)
  • Sovereign nations selling bonds (China, Russia and Turkey to name a few)

The case for lower interest rates:

  • (IMHO a wrongly footed) “Flight to safety” if the stock market starts coming down
  • Flight to safety from emerging market flight capital (money leaving plummeting currency nations like Turkey, for example)
  • The US economy, both the government and the public sector really can’t handle higher rates
  • President Trump openly criticizing the Fed and interest rates

Then there is the wild card of the flattening yield curve.

And those are just some of the factors weighing on the bond market.

Yikes!

Crude oil is back above $66 and staring down $67:

Everybody is convinced crude oil is making another trip lower, and if it is a “follow suit” with gold and silver to retest the lows, then it is certainly possible, and if there is a glut of supply due to a slowing global economy, it is only more possible.

That said, right now conditions are ripe for geo-politics to become a factor in the price of crude oil – specifically with regional turmoil in Africa and the tensions relating to the sanctions on Iran.

Additionally, US shale oil could be peaking after companies ramped-up production this year, and production in Venezuela is plummeting.

Now, allow me to wear my tin foil hat for one moment here.

I can’t prove this 100%, and I do not want to take the time necessary to do so, but I have long suspected the plummet in the price of oil that began in 2014 was, in part, because of black market oil sales from ISIS. In other words, the world was flooded with off-the books and not in official production numbers black market oil, for the purposes or raising capital and paying operating costs for the terrorist machine. And looking a the surge in ISIS activity, it really became a factor right around that time in mid 2014. When I was a green-suiter in Iraq, there was no ISIS as they came later, and they really were wreaking havoc in the last couple years of the Obama administration. Furthermore, with the defeat of ISIS, what has happened to the price of oil? It has since been recovering, in part because of my theory that there is not the dumping of off-books oil onto the world’s market to fund the terrorist organization.

Now I get it – they made money in other ways – Sex trafficking, plunder and pillaging, direct funds from the U.S. and the U.K., the drug trade and what now, but oil had to have been a part of it.

OK. It’ll take off my tin foil hat now.

So I’m still calling for oil to hit $80 by the end of the year.

We’ll see.

Copper has recovered somewhat over the last few days:

This also makes sense looking at the drop in the US dollar. So if the dollar is continuing to fall, we would see copper continue to recover, and being climbing that proverbial wall of worry.

Palladium has completely recovered from last week’s smash:

Which is a very good sign if palladium is indeed leading the charge in the precious metals higher.

Even platinum, yes, the receiver of the relentless pounding, has bounced here:

I’m definitely not getting my hopes up, and trading down to a 700-handle is something that nobody was calling for at the beginning of the year. It also seems nobody is calling for a rally just yet either. Platinum has been the ultimate in “don’t catch a falling knife”, but it looks like it has finally landed on the floor.

We’ll see.

The gold to silver ratio is providing the last opportunities to take advantage of an amazing arbitrage at this point in the cycle:

Suffice to say, my range of 78 – 80 is no longer valid.

However, I do think this is a final thrust higher in the move, call it a “break-out, fake-out”, and the next major move is down, meaning it takes less ounces of silver to buy one single ounce of gold.

Over the last several days, we see why the ratio has gone up:

Gold has simply outperformed silver at the start of this rally.

Yes, I said it.

At the start of this rally.

There.

I said it again.

Wait a minute, “Hey Half Dollar, are you saying the rally has begun”.

If we can get through this week without getting smashed, I do think the rally has begun.

On Monday I said I was looking for gold & silver to end the week between “unchanged to slightly higher”.

So far that call is holding up.

That said, if my call holds, some of those shorts may begin to cover as they realize the metals aren’t going lower.

If gold and silver can actually stage an impressive move here, then we could even see the beginnings of an epic short squeeze.

So while it has been agony for many months, and downright miserable over the last month, I’m saying get ready for exciting times ahead, as soon as this week.

Suffice to say, with all the calls of re-testing those December, 2015 lows, this next rally will truly be climbing one of the most epic walls of worry, ever.

Because everybody knows the rally is coming, but nobody is willing to believe it when it begins, which it may already have.

And we are seeing exactly what we need to see as far as gold moving first, which it has after coming off of the bottom, and now we really need to see silver start moving to outperform gold.

Time will tell if that is the case.

It is good to see gold above $1200:

If we are embarking on a rally that carries gold 25% higher, over the next few months, then we would be talking about a move in the price of gold from $1200 to $1500.

The bullish sentiment that will come back into the market at that point will be a sight to see.

Speaking of sights to see, we really need to see silver get back above $15:

I’d take a close above $15 to finish the week, and if we finish the week above $15.35, a price level that would surely trigger the buy orders for many of those shorts, we could see silver begin to really out-perform gold.

The key take-away as we sit here on Hump Day: Get ready for some volatility in the metals.

Look for volatility especially this morning, this afternoon, and on Friday morning.

If the rally has actually begun, we are about to climb the most epic wall of worry.

Stack accordingly…

– Half Dollar


 

About the Author

U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.

Paul’s free book Gold & Silver 2.0: Tales from the Crypto can be found in the usual places like Amazon, Apple iBooks & Google Play, or online at PaulEberhart.com. Paul’s Twitter is @Paul_Eberhart.

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