I wanted to write a moderate sized piece here with my thoughts that isn’t a 35 part Tweet, but also not one of my biblical in size blog posts.
I have told everyone that Options Expiration is Tuesday, April 26th – at like 1:25 PM eastern time. About a week before these, you might see some clubbing going on. For NOW, that is what I think this is. If we are still in a free fall by end of next week, I have to revise my thinking. Some have pointed out that the OpEx push down has gone too far, and I think you could be right with that as well. However, let’s take a look at the COTS report.
These are both indicating there may be further shorting ahead by the banks. But WHY….
The thing that seems THE most logical to me is that the ENVIRONMENT for gold and silver is extremely good at the moment. It is LIKELY that many will start to move there, at some point, on a large scale. To me, this looks like there may be some sector rotation coming, no one wants to hold cash for long with 17% inflation, and the banks do not want to get run over on their spec short side.
To be clear, out of the 700+m oz that are short, there are longs that match that. What I can see with my own two eyes is the most logical thinking that 400+m of this is legitimate hedging of forward production by the big mining companies that produce lead, zinc, and gold – and hedge their silver production. I do believe there’s a 100-200m spec short position that is able to directionally move the price of silver. There are two major catalysts I’m seeing here that are having me consider that banks are trying to buy back shorts, the cheapest they can…
- Russia is starving the west of commodities – including gold and silver.
- China is doing their thing with lock downs and creating all kinds of supply chain issues.
To ME, this appears like there is a form of economic warfare going on that no one is really telling you about. The gold in the East is superior in volume than the West. The ruble has now shot back to pre-war levels, thanks in part to energy/gold.
To me, it is CLEAR the Fed needs to try and “save the dollar” rather than save the markets. I wrote about this in January – where I wrote – “Could they let it burn” in respects to their seemed to be a choice. Save the dollar, and burn the stock market down, or burn the dollar down to save the stock markets. I then reasoned, you can build the markets back with the dollar, but if you sacrifice the dollar you then hyper inflate out of control.
In this tightening environment, it is thus reasonable to see rates run higher, as with 17% inflation, no one wants to buy something for 10 years at 2%, so when the fed stops buying this, amazingly, you see rates climb. This has an effect on cost of capital – which increase business costs, and stop future development. This causes a recession. And – using Rafi’s report, you can see how raising Fed rates have caused recessions since the 1950s.
What this may do then is have people run out of stocks, and in to “safe haven assets”. That is, bonds and gold – and even cash. But at 17% inflation, does it make sense to buy a 10yr at 2.9% and guarantee loss of 14% per year? ONLY if you believe these actions will lead to inflation coming down below 2.9% in the next 9+ years. Can gold move up WITH the DXY? YES…
The key here I believe you can see from this chart, is when the FED FUNDS rates start increasing, the recession happens – or is projected to happen – which pushes down the 10yr, and THIS is the catalyst for gold.
Check this out…
All of this goes back to my discussion on Oliver vs Hunter. My BELIEF is that this is setting up as a “classic recession” in which you will see sector rotation out of “hot things” into undervalued things. Where a Hunter may see everything melting up, Oliver is seeing an “arm wrestling match” going on in which you see money moving across sectors.
Consider the major charts and the pull backs we have seen…
Now, these are still all in the neighborhood of all time highs. And AS these have been rolling over, gold has inversely performed to them.
With gold, I feel we are now back in a flagging pattern for this cup. Could it pull back more? Certainly. IF we have many 1000 point down days ahead in the next week, could we see gold in the 1800s again and lower? YES.
However, those OpEx patterns I found with beatings ended around December. After 16 months. This is the silver chart I was tracking…
What I demonstrated were monthly beating patterns which ended with November OpEx beat down bleeding into December. By the time the “December beat down” time had come, there were no weak hands to rinse out, and thus I accurately predicted in December there would be no beating. In fact, it rose. With the invasion I also accurately “guessed” there would be no real carnage as no one wanted to short into a weekend with a war going on.
However, what we are seeing now could be most people now being numb to the war, and with that, the recent weak hands that got in are now about to be served some swift justices. If you look at it like a bus of rubes just came in to the casino with pockets full of cash, the dealers are foaming at the mouth to take that money. That was the past 3-4 months of rubes coming into the casino.
Now, I feel we have a crossroads…
- Is this an OpEx beating that may last into the BIS/LBMA options for the last day, then rebound?
- Is this a more serious flagging event meant to rinse weak hands out and wring the rag as hard as they can to then go long?
- Are PMs dead because there’s a QT event?
No one can know, for certain, but we can view the evidence in front of us.
The last 2 days, my trading account was hammered, hard. This seemed to be people getting out of miners ahead of the monthly beatings. This is rather normal. However, in November this happened and it was sort of severe. Let’s take a look at a few ratios. It’s possible miners just got way ahead of the metals and needed to dial it back a little.
Here, we see a big green candle showing miners underperformed metals..
To me, this chart above screams that gold is going to take over ahead. The gold to GDX chart also shows a healthy pause in the miners outperforming the metals. Could this revert? Yes. I still see room to the downside, meaning this could just be a weekly pullback due to OpEx.
What I see?
- I need to watch OpEx this week. I bought at the end of this week and dabbled buying things in tranches. IF this doesn’t reverse by Weds afternoon, I may need to take 10% losses or so on those recent buys and get out and back to the 20% cash I was in. I took a flier on piling into some things towards the end of the week and may wind up with a mild sunburn due to buying things pretty dang cheap.
- IF this is an OpEx event, those buys I just had that have 3% losses can get to 10-20% gains in 1-3 weeks.
So, before I get back into 20% cash, I’d like to see if this is a trader’s event.
Perhaps we see some support at GDX at $35 ish. Who knows. I do know that I can get out with a 5% downside loss on recent buys and get back in at $30 or $32 if it drops that far and ride it back to $46.
- I see the 10yr topping soon. This going lower may be good for stocks, but to me is THE primary headwind of gold. With promise of future fed funds rates going up, this to me leads to a slow down and recession, and with this, I think you may see many more people cashing out of markets and rotating to risk off. This is good for gold.
- gold CAN rise with the DXY, and may very well. However, with Russia/Chinese issues affecting inflation, one can see these numbers staying over 7% for the foreseeable future. I believe this sustained number MAY lead to capitulation with DXY as the question “where do I put my cash” is constant.
- Q1 profits coming out for miners should be amazing, AS you see more and more big tech losing their asses. This to me has the bigger gold miners continuing to see love, and the continued central bank buying of gold on dips creates that floor.
- May last year was good for gold, but late summer the last two years hasn’t been awesome. I could see a late Q2 rally for gold/miners with rotation, but all bets are off at the end of this rally.
- As recession takes place, you will see unemployment numbers going up. This will lead to more questions about “what are you doing about unemployment” to the Fed, since this is one of their legit mandates. You will then have dems running for mid term offices and pressure to the White House to slow unemployment MAY give the Fed reason to slow down the hawkish tones – or kick the can until AFTER the election. This may give the markets another boost up and may take gold down a little.
- However, unemployment will continue as inflation stays elevated. I feel towards the fall the Dems will be seen as colossal failures with policy which may lead them to double down on a “Build Back Better” promise to get more people to work – IF you spend $6T. This talk and election uncertainty damages the DXY to give another boost to gold in the fall.
- Republicans sweep elections, promise to crush inflation and cut spending. This may be really bad for gold, but reality hasn’t set in yet that anything they may want to try will make things much worse. This could lead to a really back second half 2023.
My window for gold/miners is summer 2023. While I’m stupid for putting dates/times on any of this, it can give some credence to why there may be a LOT of volatility with the metals. While $2500 by next summer is in the books – I expect trading ranges with volatile moves up – then sideways/flagging consolidation.
I side with OLIVER over HUNTER and feel this tech draw down and overall uncertainty and FEAR will lead to gold getting a nice boost. AT THE MOMENT, I feel we are dealing with gold/silver TRADING where the paper guys are taking profits and re-loading for the next leg up in May.
I COULD BE 100% WRONG – AND I WILL HAVE TIGHT STOPS ON RECENT BUYS!!!!!
To me, it is not about RIGHT or WRONG – it’s about managing risk. With my buys on Thur/Friday, I was betting on a 5% downside risk playing the OpEx lows versus the 25% upside within 4 weeks. That was a 5:1 bet. IF I am wrong, I will cut losses by mid week and have stupid levels of cash to engage at a later time. My OPINION is this gold draw down is related to banks crushing recent weak hands in order to then buy back a lot of shorts for a very strong leg up coming.
I AM in the camp of the permabulls, BUT you have to remember where everyone was a week or two ago with “gold going to the moon”. In these bull markets, you will have 2 or 3 days up, one day back…in the pull back days, it was 1-2 good days up, 2-4 bad days down. We WILL have pull backs. But you also might want to look at this in the lens of risk, and not “Nate is right or wrong”. Remember, there is a risk of NOT being in the markets and miners melt up while you are on the sidelines. Calling the tops or the bottoms is a fools’ errand. I like to play with the RSIs and MACDs, and most of this stuff has a MACD sell, but the RSIs are getting lower and more attractive to buy in a bull market. They don’t usually go down to 30, but start catching bids at 45 to 40.
Could gold move down? Sure.