Time for the Monetary Metals Defibrillator

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GOLD

Gold came within $4 of the previous low of 1622 today. There are just two primary potential outcomes here:

1. Gold breaks support at 1622, creating a positively divergent lower low, or
2. It breaks and closes above the downward trendline resistance since the peak at 1740.

The other alternative is it does both in the same 1-2 order.

On a weekly basis, we can see that Gold remains in a bullish flag pattern. Both the RSI and the MACD Histogram continue to show positive divergences as the price falls. The MACD Line remains at its lowest level since December 2013.

As with the daily chart, we could get a sharp, but brief, fake breakdown to as much as 1550 before heading higher again and breaking trendline resistance to the upside. Until that occurs, the trend remains down.

Showing the monthly chart here to illustrate that we’re still very much in a secular bull market.

SILVER

Silver more often than not disappoints, then one day, it just goes ballistic. Suffice to say that this is definitely not a free market.

It could be setting up for another lower low, breaking 17.40. But the positive divergences have been piling up since July. That said, until we take out the prior high of 21.31 and the 200-DMA, the risk remains down.

The weekly chart is certainly much more bullish. We just need price to confirm it by closing above the 200-WMA and breaking 21.31.

On a final note, the market appears and feels like it is on hold, imho. There have been a few pops and drops in all the markets over the past few weeks, but they were contained within a day or two. I’m actually surprised that a bomb hasn’t already gone off in the markets somewhere given the sheer number of potential triggers. Could the Fed be using off-balance sheet funds to keep the boat afloat until they can get another rate hike or two in? Sure they could. But this can’t go on much longer.

The UK is already getting another new Prime Minister, having had to do a quick 180 on fiscal policies to avoid the collapse of their sovereign debt market and the system itself. Now concerns are rising about liquidity in the U.S. Treasury market, following comments from numerous officials, including Yellen, and several disastrous treasury auctions in a row. The level of desperation has reached the point where the Treasury asked primary dealers if Treasury should buy back Treasury Bonds to increase liquidity in the markets. In other words, no one else is buying! All of which is perverse, because it is the Treasury issuing the bonds to finance the massive and rising government deficits and debt. It’s only a matter of when this all blows up, but perhaps the Fed will want their 4% or 4.5% Fed Funds rate before cutting again.

In the meantime, keep the defibrillator on hand for stocks, bonds, FX currencies, commodities, and monetary metals, i.e., Gold and Silver.