The current washout in metals and miners is purely technical (banks covering shorts). It should end quickly, and then we start the next significant advance, which I suspect will take gold above $2100.
The US may be approaching a crisis if long-term Treasury yields continue to spike.
Last September, the yield on the 30-year UK Gilt jumped over 5.0%, and the Bank of England had to buy bonds to soothe markets.
The yield on the 10-year US Treasury just hit 4.81%. Something could shatter if it surges above 5.00%. Financial systems repeatedly implode in October; the next few weeks could be interesting.
To the Moon and Back
The US Debt Clock just turned $33 trillion. If you stacked that in $1 bills, it would reach the moon and back four times. I had to do the math a few times to ensure this was correct.
In case you were wondering, the moon is 238,900 miles away. And if you used the estimated $200 trillion of unfunded liabilities, it could make 24 roundtrips.
Downward Revisions
On Friday, we will see the September employment report. Economists are expecting 170,00 jobs. Thus far in 2023, we’ve had seven consecutive months of downward revisions; this is rare, often happening at turning points either leading into or out of a recession.
Fed Watch Tool
The odds for a rate hike at the November 1st Fed meeting are 25.6%. The rub: If Powell pushes too hard, the 10-year could spike above 5.00% breaking something in the financial system. But if he doesn’t hike, back-to-back pauses would support an end to the tightening cycle, which gold desperately needs. Watch the 10-year!
Core PCE
Core PCE fell below 4.0% for the first time since June 2021. Perhaps this will give Powell cover to remain on pause.
BOND CRISIS 2.0
THE 2022 GILT CRISIS
Last year’s crisis was due to a sudden jump in September when the yield on the 30-year UK bond spiked from 3.50% to over 5%. The Bank of England had to step in with massive purchases. I suspect something similar could happen in the US.
10-YEAR TREASURY YIELD NOW
The 10-year yield reached 4.81%. A spike above 5% in the coming days/weeks could trigger another crisis, and the Fed may have to intervene. For this reason, I think Powell is done hiking.
THE MOVE INDEX
The MOVE Index is the VIX for bonds. A reading above 140 signals stress; it just hit 141. A spike above 160 could be the precursor to another disaster.
CREDIT CARD BALANCES
Consumer credit card balances and personal interest payments are soaring. With interest on credit cards over 22%, the consumer is getting crushed.
UNPROFITABLE COMPANIES
In Q1 2023, the percentage of unprofitable companies in the Russell 2000 reached 45.5%. During Covid, it hit 53%. We could see new highs if the Fed keeps rates above 5%.
METALS UPDATE
Our Gold Cycle Indicator finished at 44, and we are in maximum cycle bottoming. We expect a bottom in the coming days.
GOLD DAILY
After eight red candles in a row, gold is deeply oversold. We are looking for prices to bottom out over the next few days. An undercut of the $1810 support level is possible.
SILVER DAILY
Silver broke the 1-year trendline (with some help from the banks), and a flush out towards $20.00 is underway. The next level of support arrives at the March 10th price gap near $20.50. As with gold, we are expecting a bottom in the coming days.
GDX DAILY
Gold miners are testing the lower boundary of the trend channel. A final capitulation day below the trendline is possible. A similar correction pattern occurred in 2016.
GDX 2016 CORRECTION
In 2016, GDX corrected similarly. After the fourth test of the lower boundary, prices reversed. We knew the bottom was in once prices closed above the final exhaustion gap.
GDXJ DAILY
Juniors are testing the lower boundary and are deeply oversold. A daily close above the $32.35 price gap would support a bottom.
SILJ DAILY
Silver juniors may be working on a massive double bottom if prices hold the $8.00 support level over the next few days.
Conclusion
The final washout in metals and miners is underway. The big picture outlook remains bullish, and we see a strong rally once prices bottom. The next few trading days are crucial.
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