This scenario is only expected to play out in the event that we see a Pan selloff in coming weeks and months and by that I mean a broad based and indisciminate dumping of assets, especially risk on assets, in part due to margin calls, which would be occasioned by a continued steep rise in interest rates. As we know, rates have been rising in recent weeks and threatening to break out upside from what is believed to be a two and a half year consolidation pattern that has taken the form of a bullish Ascending Triangle, as set out in the article OUTLOOK FOR US TREASURIES, posted on the site last Sunday 17th. A clear breakout from this pattern suggests that they will then advance quite steeply towards 10%, a level that, given the enormous and and exponentially expanding debt, will quickly lead to a major crisis and involve a collapsing bond market and crashing stock market.
The big question therefore is whether the Fed can do what it usually does and has done up to now and temporarily head off such a crisis by the simple expedient of creating vast amounts of money to throw at propping up the bond market thus capping the rise in rates. There are two big reasons why this probably won’t work this time. One is that debt has now risen to such gargantuan levels – at $40 trillion in the US and continuing to balloon rapidly – that such an approach would quickly kick the props out from under the dollar, which would plunge, leading to rapidly accelerating inflation in the direction of hyperinflation and spiking rates which would defeat the purpose of the exercise. Another is that due to its behaviour in recent years and especially over the past year or two, with tariffs and a war of choice against Iran etc, many countries and investors are actively seeking to divest themselves of dollar denominated assets and if the US is perceived to be pursuing the easy way out as usual by creating vast quantities of money out of thin air, it will trigger accelerated dumping of dollar assets. Another key point to note is that the ruling class may not want to avert an economic meltdown at all – they may actually welcome it, as they are so wealthy it won’t affect them personally and it will enable them to cull the population, one of their long cherished goals, and to asset strip the survivors and the way this works is that anyone with debt of any kind will have that debt called in and whatever assets they have will be forcibly acquired for pennies on the dollar in what is known as “The Great Taking” – and the laws have already been quietly changed to allow this to take place.
We have already seen three major acts of economic sabotage so far this decade in pursuit of The Great Reset that have caused many trillions of dollars of damage to the global economy. The first was the Covid psyop and a big reason that the cost of living has risen dramatically while wages have been stagnant is the trillions of dollars created out of thin air to drive this fiasco. Then we had the tariffs which were designed to cause widespread damage and dislocation to supply chains and now “the gloves have come off” with the choking off of energy supplies. All of these efforts are aimed at collapsing the global economy in order to create a state of desperation and dependency amongst the general population so that they can then be easily corralled into the total control grid CBDC system – and the economy is going down anyway because of the impossible extremes of debt but these campaigns are designed to accelerate the process. This is why crashing bond markets and stock markets are a question of when, not if, and it is why the possibility of a steep rise in rates here should be taken so seriously.
So, we should watch what happens to rates here like a hawk. If they continue to advance towards 10% then we can expect the stock market to buckle and cave in. With margin calls going out widespread and indiscriminate dumping of whatever can be sold will follow and this will include gold and silver and resource stocks generally, just as happened in 2008. However, they are later expected to recover sharply before the market’s panic phase has run its course as investors rush to the security of hard assets. An approximate attempt to map out this scenario is presented on the two charts for GDX (Market Vectors Gold Miners ETF) below. We will look at downside targets for gold and silver in this scenario soon in an upcoming article, but for now a basic gold chart has been added at the top of the 1-year chart for GDX.
So, on the 1-year chart for GDX, we see that once it breaches the rising 200-day moving average, which it is now close to doing, it is likely to drop steeply to the support shown in the $53 - $55 zone which is above the trading range that formed from June through early August last year and this should coincide with gold dropping back to very strong support in the $3500 area which after some choppy action should get it moving higher again. The downside target for silver – not shown but we will look at it later – is obvious and is at about the $50 level which is the upper boundary of the giant 45-year holding pattern it broke out of late last year. Needless to say, if these levels are hit, we will be looking to buy aggessively.
The risk of this scenario becoming reality has increased greatly in the recent past with rates breaking higher, triggering a breakdown from the Symmetrical Triangle that we can see more clearly on the year-to-date chart for GDX. The high volume gap down about a week ago was a bearish development that pointed to the breakdown from the Triangle that followed, and now it looks like it is hanging on to the support of the rising 200-day moving average by its fingernails with momentum (MACD) breaking down too – if this breaks, look out below.
End of update.
Posted at 6.00 pm EDT on 21st May 26.