In last week’s article entitled “Fed Pauses / Pivots”, I cited Nick Timiraos’ article in the Wall Street Journal “Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes.” In it, he suggested that the Fed was going to consider reducing its rate hikes going forward. Fast forward to today, and the Bank of Canada surprised everyone with a smaller rate hike than expected. They raised rates by 0.50% when 0.75% was anticipated. This follows a similar decision by the Royal Bank of Australia on October 4. Central Banks are now taking their collective foot off the gas, signaling a global wind down of tightening policies. All that remains to be seen is if the Fed follows the trend at the FOMC meeting next Wednesday.
The market certainly believes that the Fed will slow their hikes going forward, even if they raise rates 75 basis points next week. We know this because stocks soared, nominal bond and real yields fell, the dollar dumped and is now testing key support, and monetary metals climbed off their lows. Now it’s up to the Fed to spoil the optimism or join the other central banks by scaling back their rate hikes—in other words, “pivot”.
Gold broke its downtrend from the peak on October 4 with help from Timiraos and the Fed’s Daly last Friday. It established a double bottom at 1621/22 in the process. The MACD Histogram has turned positive and the MACD Line has broken to the upside. The RSI is below 50, meaning there is plenty of room to go higher before becoming overbought.
That said, we still need to break 1700, and more importantly 1740, before getting excited about the upside. Until then, further downside risk remains.
The Fed’s announcement next week will decide one way or the other.
The weekly chart is even more bullish. A break of the steep bull flag to the upside would likely send Gold to new highs. The RSI and MACD Histogram have been positively divergent at recent lower lows. The MACD Line is also coming off its lowest level since 2013.
Like Gold, Silver is looking good too. It held trendline support again, rallied, and broke its 50-DMA also. This follows a series of positively divergent lower lows and increasing momentum across all indicators. However, we still need to break 21.31 and the 200-DMA before getting bullish in a big way.
The weekly chart for Silver is as bullish as that for Gold, if not more so. All the momentum indicators are trending higher. It just needs to take out the prior high of 21.31 to really get things going.
As I have been saying for weeks—months—everything is lining up for a monster rally and we’re just waiting for the Fed to pivot. Well, it looks like it is happening. In the very short-term, the Fed could disappoint the market and Gold and Silver dump again. But even if that is the case, the other central banks, Timiraos, and the Fed’s Daly have clearly signaled that the ship is turning, and much sooner rather than later. Any disappointment by the Fed next week is just another delay in the inevitable.
On a final note, when Gold and Silver take off, they are likely to be unobtainable. This is because physical inventories are disappearing rapidly and globally. Premiums over spot are soaring to record highs. Dealers are even bidding over spot paper prices now to get product—a new and startling development signaling the end of the paper futures market soon. The point being: if you don’t have any now, get some physical Gold or Silver quick, imho, because it may be gone soon… and the price with it.
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