I haven’t written much about gold in the recent past – since the failed breakout attempt early in December - simply because I haven’t known what to make of it, and that indecisiveness has been reflected in the market itself where we have seen gold stuck in a fairly narrow trading range, but now things are starting to become a lot clearer both fundamentally and technically, and as we will proceed to see, it’s not a pretty picture.
On gold’s latest 6-month chart we can see the trading range that has built out since early December and it is now becoming clear that the pattern that has formed is a Head-and-Shoulders top that also has the characteristics of a Double or Triple Top or a Symmetrical Triangle and right now it is on the point of backing off from the Right Shoulder peak of the pattern. We can be a lot more sure that this is what it is from the volume pattern that from early December has been very bearish, with heavy downside volume, which is why the Accumulation line has been in severe decline. This pattern portends a breach of the support and a drop and at the time of writing, Monday morning (charts made yesterday), gold is down quite hard.
If gold is set to drop then what about PM stocks? The answer is that they will drop more. Now, I know about the valid argument that the gold stocks to gold ratio is already at a low level that is traditionally bullish and leads to a reversal to the upside and new bullmarket, but that won’t prevent a possible flushout first. On the latest 6-month chart for GDX is shown what I believe will happen to PM stocks if gold breaks down soon as it looks set to. Such a drop would really lead to many diehard PM stock holders throwing in the towel in disgust, and the correct way for existing holders of PM stocks to handle this right now (with the exception of a few special situations) is either to hedge or to step aside and buy back once the dust has settled after another drop.
Alright, if the PM sector is set to drop hard soon, then what will be the cause of it? – the answer is a rally in the dollar. So now let’s take a look at the latest dollar index chart and we will sharpen this by then taking a look at a dollar proxy where we have the benefit of being able to see the volume pattern.
On the 6-month dollar index chart we can see that, while our suspected Head-and-Shoulders top has been building out in gold, the inverse pattern, a Head-and-Shoulders bottom, has been building out on the dollar, which is hardly surprising. The dollar rallied well in January, up from the low of the Head of the H&S bottom, and after a big up day last Friday is now on the point of breaking out of this potential base pattern. Breakout will be signaled by it breaking clear above the resistance marking the upper boundary of the pattern. Momentum has been improving rapidly and moving averages are steadily swinging into much better alignment.
It is helpful to also look at a dollar index proxy, in this case the Invesco DB Dollar Index Bullish Fund, where we can find additional clues regarding what is going on, especially in the volume pattern. This is very illuminating for on this chart we see that UUP already had a volume breakout last Wednesday and a price breakout from its parallel H&S bottom pattern on Friday, again on strong volume, So “the writing is on the wall”
with respect to the immediate outlook for both the dollar and the Precious Metals. This chart looks strong with a bullish volume pattern and the Accumulation line uptrending since late November, momentum rapidly improving and now positive and moving averages swinging into decidedly bullish alignment.
This brings us to the next big question – you can see how we are “reverse engineering” this – which is “Why would the dollar rally now?” The answer to this is that threats to the global hegemony of the petrodollar are being addressed and beaten back. It is no coincidence that the military action being undertaken in the Mid-East, specifically with respect to Iran, is taking place just weeks after Iran (and Saudi Arabia) joined the BRICS, which organization represents a clear and growing threat to the global dollar system. This is a threat that will simply not be tolerated and so the enforcement arm of the US Federal Reserve, i.e. the US Military, is over there to “teach the BRICS a lesson” and anyone else who dares to challenge dollar hegemony.
So what we are seeing is a gigantic global power play. The US Federal Reserve and the Neocons see themselves as the rulers of the planet and they have been making some very big moves on the chessboard in the recent past and over the past several years. They didn’t like the fact that Europe and Russia and other points east were getting friendly with each other and growing in economic strength through cooperation so they “put a spanner in the works” by blowing up the Nordstream pipeline. Although this was obviously the handiwork of the US – Biden said they would stop it - you didn’t hear a peep about it from European politicians who are all bought off and corrupted with Europe being a mere collection of vassal states. European leaders couldn’t care less that their citizens would suffer from energy shortages and high prices as a result. They also goaded Russia into invading eastern Ukraine and then tried with their controlled media to turn it into an international pariah with the resulting war in the Ukraine providing an opportunity to launder vast amounts of money and also to clear out the population of Ukraine in readiness for it to become a “backup Israel”. The disruption to shipping in the Red Sea also helps the US in relative terms since it is far more damaging to the European and Asian economies than it is to the US.
The interesting thing is that the US power play in the Mid-East is actually a bluff, because countries like Russia and even Iran have unstoppable hypersonic missiles that could quickly send US battle carrier groups to the bottom and likewise quickly take out the 50 or so US military bases in the region, so why don’t they use them and stop the hegemon in its tracks? There are two possible explanations. One is that they understand that the leaders of the New World Order are satanic lunatics who would not think twice about using nukes and would actually enjoy it, and we know that this is so because of them trying to shut down farming and force the population to eat insects and the other explanation is that these leaders, of Russia and various Mid-East countries, are in on the plan and are role playing, like the European leaders. Actually, watching the interplay between the Federal Reserve and US Neocons versus European leaders is like watching a chess grand master sat across the chess board from a chimpanzee. European leaders cannot
be that stupid, so we must assume they are all bought off and corrupted – they certainly do not serve the interests of the peoples of Europe which is being intentionally mongrelized by means of invading hordes from Africa and the Mid-East.
The point is that through its aggressive brinksmanship that it has so far gotten away with, US elites have been and are tilting the balance of power back in favor of the US at the expense of the rest of the world which, if they succeed, will mean that they can carry on the enviable business of printing paper to swap for goods and services from foreign dupes. This is why the dollar index is rallying and this is why gold and silver may be set for another drop. Most importantly, this tilt in the balance of power will shore up the debt markets and the stockmarket, enabling the Fed to engage in continued money creation with ongoing war in the Mid-East (and the Ukraine) providing a perfect excuse, and some of this newly minted money can of course be used to buy off European politicians as usual and also provide food and lodging for the millions of new immigrants across the US.
The longer-term outlook for gold and silver could not be better with continued money creation and resulting inflation meaning that their prices must rise to compensate. Banks are known to be buying gold at record rates and short positions in gold and silver are being closed out, creating a potentially explosively bullish setup for the Precious Metals, so the expected short to medium-term drop in the metals resulting from temporary dollar strength will provide a final opportunity to buy at good prices. Tactics now are therefore to hedge or step aside here and be ready to move back in once this last drop has run its course and we will of course be looking out for this.
End of update.