Precious Metals Roar: Enter Nirvana
Gold reaches $2,300 and silver finally breaks-out above $26.00
As a long time precious metals investor and market observer, it's difficult to surprise me. Over the last 20+ years I feel like I've seen just about everything when it comes to gold and silver. Well, almost everything.
The recent price action in gold is something that stands out in my mind as something I've never seen before. At the beginning of March, gold began to lift-off from the $2,050 level and it hasn't looked back since. Sure we've had some pullbacks, and gold even spent two weeks consolidating in mid-March. However, there was never a doubt that the bulls have been in control.
Gold (4-Hour)
The move over the last week from $2,160 to $2,308 has been so good that it has me wondering if we're beginning to get too much of a good thing. In fact, I would be pleased if gold took a few days at the end of this week to consolidate between $2,250 and $2,300. I fear that much more near term upside risks a blow-off topping move, at least in the near term.
So far, sentiment hasn’t reached extreme levels of froth. The Daily Sentiment Index (DSI) for both gold and silver are currently at 88. Close to extreme bullishness, but not quite there yet.
For its part, silver did a good job of lagging gold during much of the recent rise. Yesterday, silver finally made its move with what appears to be a decisive breakout above the $26 resistance level:
Silver (30-minute)
What makes the silver move all the more noteworthy is the fact that silver is threatening to confirm a breakout from a multi-year H&S bottom pattern on the weekly chart:
Silver (Weekly)
The pattern, if confirmed, measures to $30+.
A few weeks ago, while speaking with Jordan Roy-Byrne of The Daily Gold, I mentioned that a breakout above $26 for silver would signal the onset of the "Nirvana" stage. And now, we find ourselves in Nirvana, yet without a clear explanation for the rally in gold and silver.
Despite rising Treasury yields, a strong US dollar, and a seemingly invulnerable stock market—factors traditionally thought to be counter to a gold bull market—we are witnessing gold at $2,300.
In fact, the gold rise from $1825 in October to $2308 is one of the best examples of the power of focusing on price action, and not operating from 'fundamental narratives'. Gold is skating to where the puck is going, it's just that most market participants can't see where the puck is going.
I’ll leave you with this excellent tweet from James E. Thorne of Wellington-Altus in Toronto:
“The Fed has no choice. If rates are not cut we get a financial crisis. There is too much government debt!
We now live in an era of Fiscal Dominance.
The term "fiscal dominance" refers to a situation in which the government's fiscal policy (Deficits of 6% and Debt to GDP at WWII levels) significantly influences or dominates the monetary policy set by the central bank.
This occurs when a government's debt level is so high that it restricts the central bank's ability to control inflation through monetary policy tools, such as setting interest rates.
If rates don’t come down, and the value of the USD does not come down then there is a very high will probability that the US will experience a failed bond auction.
Sorry folks there is no other alternative.”
The failed US Treasury auction scenario has always been the ultimate bull-case for precious metals. If formerly ‘risk-free’ US government debt were to suddenly become extremely risky, it would usher in a new era of sound money and a return to hard assets like gold and silver. Ultimately, the currency has to be the outlet for the fiscal profligacy of politicians.
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