Gold & Silver Remain Stuck in Limbo

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While we’re still waiting on the Fed to pivot, the stress on the global banking and financial system continues. The Bank of England had to step in again this week to support the UK government bond market and its pension system, despite saying the initial panic move was only temporary. The Swiss National Bank also requested a $3.1 billion FX swap line to support one of its financial institutions, most likely Credit Suisse, which is now on life support as it tries to sell everything but the kitchen sink to stay afloat.

The Fed continues to emphasize that they plan to stay the course on rate hikes to reduce inflation back down to 2%, which is virtually impossible given that inflation is a supply-side phenomenon. I like to tweet Shakespeare’s “Methinks thou dost protest too much” every time a different Fed speaker says the same thing over and over again like a child who repeatedly protests he didn’t take any cookies from the jar while the crumbs on the corners of his mouth betray him. Meanwhile, the triggers for an inevitable pivot continue to pile up in bond markets, the stock market, the banking sector, emerging markets, and so on and on. All it takes is one snowflake for the avalanche to begin, and there are so many potential snowflakes!

In the meantime, we just have to track the movements in price until we get a break of resistance and a confirmed change in trend to the upside.

GOLD

Per my article for SilverChartistPro.com this past weekend: “While we have a higher high above 1700, a break of 1700 opens up the risk of a lower low.” Well, we’re below 1700 now.

I also stated: “By contrast, if we rally from here or from a higher low above 1622 and break 1740, that would mean we have both higher highs and higher lows.”

Finally, I stated: “That said, I won’t feel comfortable that the bottom is well and truly in place until we take out the prior high of 1824 and the 200-DMA.”

In summary, we need to see where this latest reversal bottoms out:

1. If it’s a lower low but positively divergent, then we need to restart the climb to a higher high above 1740, and more importantly above 1824, for the bottom to be in place.
2. If it’s a higher low anywhere above 1622, then a break of 1740 would mean the trend has turned to the upside—a higher low followed by a higher high.
3. If we break 1622, the bearish case is that we are heading even lower before turning up. The next target on the downside would be ~1400 where wave C = 1.618 times the size of wave A down from the peak at 2089.

In the meantime, if something breaks in the markets that causes the Fed to just reduce its next rate hike to 50bp, the bottom is in, imho.

SILVER

Silver broke the 50-DMA, resistance at 20 and at 20.87 too, only to fail to reach the 200-DMA and fall back below each of those prior resistance levels. 17.89 must hold now to avert another lower low. On the upside, we need to break the prior high of 21.31 and, most importantly, the 200-DMA just below 22.

Despite the disappointment that Gold and Silver failed to reach the targets required to signal that the bottom is in, the performance of the monetary metals since the FOMC rate hike on September 21 has been resilient when compared with everything else. Back then, Gold closed at 1676 and Silver at 19.48. Gold closed virtually unchanged at 1677 today and Silver is down 3% to 18.94.

At the same time, the 10-Year real yield rose 30% to 1.62%. Such a jump in real yields would typically clobber the metals. Elsewhere, the S&P is down over 7%, the Nasdaq 9%. The price of the 10-Year UST Bond is down 6% while the dollar rose almost 3%.

Finally, the FOMC minutes released today were hawkish as usual, but the Fed did take note of the following:

Diminished liquidity in Treasuries and in mortgage-backed securities:

“The markets for Treasury securities and agency MBS continued to function in an orderly manner, though liquidity conditions in both markets remained low, reflecting elevated interest rate uncertainty.”

Acknowledgement of rising financial and economic stability risks:

"Several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook."