A Big Risk-Off Week

Given a need to travel on Friday, I’m commenting here on the basis of a four-day work week, so things could change dramatically tomorrow. But this is one of the biggest risk-off weeks in quite a while with everything down except T-Bonds. But this is nothing but a con game played by the Fed over and over again, manipulating public opinion to believe they are really in control. Gold gets $100/oz. to the downside, the dollar gains, and T-Bonds gain.

So the propaganda worked once again, but if you think the Fed has an ability to actually stop its inflationary policy, I have a bridge in Brooklyn to sell you. I would encourage you to reflect on that question after you read Michael Oliver’s article on the following pages. I’m simply sorry I didn’t arrange to have more cash in my account now because I can’t see a way on God’s green earth how the Fed can do anything but respond to any serious equity market decline by   hyperinflating the supply of dollars. If you think that’s possible, please explain why the Fed won’t print endless supplies of dollars to hold rates down. 

You wouldn’t know it by their share price movements during the first four days of this week, but there was some exceptionally good news for a few names covered in this letter, like Firefox intersecting 93.88 g/t gold over 1.35 meters on its Mustajärvi Project in Finland. Then there was New Found Gold’s latest great intersection of 21.4 g/t gold over 8.05 meters. Tombill reported a 13.3-meter intersection that graded 6.23 g/t gold on an extension of the structuring hosting a multimillion-ounce gold deposit now owned in part by Equinox. As of Thursday, all of those shares were down hard, despite great news, simply because of the wind-blowing propaganda by the Fed.

While this past week was rather traumatic for those of us with substantial gold share positions, we need to put it all in perspective and I think my monthly average gold price chart shown above helps to do that, as does Michael Oliver’s June 17 missive on gold, part of which is passed along on the following page. The average London PM Fix price in March of this year was $1,718.25. Thus far in June, the average gold price for the month is $1,874.72, or $156 higher than it was in March. (See my monthly average gold price chart below.) It may still go lower as the bullion banks seek to pry some physical gold loose from naive investors before the Basel 3 rules kick in (if in fact they do). But as Michael points out, the Fed is addicted to more and more monetary morphine in order to stave off the pain of attempting to wean itself and America off of that addiction. As Stanley Druckenmiller recently said on CNBC, the trillions of dollars Joe Biden is spending could only be possible with the Fed printing trillions of dollars to buy the debt the President was creating to pay for this latest splurge of socialism. Otherwise, the interest rates would skyrocket, leading to a complete collapse of the stock market and economy. But now, it is impossible to hide rising prices as millions of Americans are having a harder and harder time putting food on their tables and paying their housing costs.

Personally, I didn’t do any trading this week. I was simply too busy with my radio show, writing this letter, and prerecording an interview with Peter Treadway that will be aired next week on my radio show. Peter was the chief economist at Fannie Mae (1978-81) and an all-star institutional equity analyst at Smith Barney (1985-98). He has some very solid views of what is taking place in America and Asia. But let me just say that I continue to think we are poised for a massive bull market in gold and gold mining because despite all manner of Federal Reserve and Biden Administration propaganda, the dollar and by extension all western currencies are in a heap of trouble because our situation is no different from that of the French government during the Mississippi Bubble of 1720. And I think Michael’s insights into the gold price as laid out here make that point as well. 

A sharp drop, yes, but so far not to levels of concern. Instead, price has returned near to levels where it emerged above the parallel (close-only) channel in early May. And around the 3-mo. avg.

Momentum is also back near likely support. To be watched around here. Especially if daily momentum engages upside soon, it’s likely these support levels will see upside from them.

It was based on this 3-qtr. avg. action in early January (arrow) that MSA issued an alert “risk control” report. Our first trigger number (negative) was $1872 if traded. That was triggered almost immediately after the report was issued and a meaningful further drop followed—to the March low. And that low we considered “the low” a couple weeks after it occurred.

The current drop is in a different technical context. On price the May upturn took out the parallel channel top as noted on the prior page. And quarterly momentum took out a downtrend through a peak and low weekly closing channel as well.

The issue now is the overhead red line that has clearly been pivotal recently and going back a year and more. If price gets back up to around the mid $1860s again, then a breakout over that next structure will occur. That red line trigger level will be lower in price equivalence than it is this quarter because the 3-qtr. avg./zero line is projected to drop about $35 or more applicable during next quarter. And if that red line in the sand on momentum is broken out above, price will follow.

Basically what this says is that what gold needs to do is just get back a few dollars above where it was trading before the Fed news/Powell statement yesterday (i.e. just above $1860). It might even accomplish that once our daily momentum turns up. But the key is to be around the mid $1860s anytime next quarter. There are nine trading days left in this quarter.

We now consider this momentum chart the most important and potent in terms of defining resumption beyond the recent highs just over $1900. In fact, if/when the red line on momentum is cleared, we expect gold to move into new all-time highs.

So first to watch is daily momentum for a rally that merely gets action back up towards the $1860s. (Weekly momentum is also very aged and ripe for upturn, so it could also assist in that).

Michael has long believed that gold will get its next really big rise when the equity markets finally succumb to the laws of gravity and so he also included some S&P 500 charts in his June 17 commentary on gold. He stated the following:

“We’re also including S&P 500 charts (representing the broad U.S. stock market) because it has developed some pivotal and opposite situations to gold. And consider fundamentally if it were to slump 10 to 15% off the highs at any time, that would no doubt put an initial chill into many investors, corporate decision makers, and asset managers. And it would certainly rise on the screen at the Fed as a new negative factor that it must address. It will become a key factor for the Fed, even if they don’t wish to admit it, one the Fed hasn’t had to deal with at least since last summer. The stock market wasn’t generating fear or caution among investors except in the very early months of last year. It has been a bold declarer that “All is well!” If it begins a decline now, as our work is on the cusp of signaling, then investors, company managers, and even laborers who aren’t in the market will sense chill and doubt. And above all the Fed wants optimism and spending to be the dominant tone out there. If doubt enters the public consciousness, then Fed policies will continue and have a tougher road, hence continued off-the-page policy direction. Few are mentioning that as a variable. I guess because everyone is now a forever upward believer? Or just numb.

So far not a policy problem for the Fed. Well, count the days … The 3-qtr. moving avg. has been following the S&P 500 to the upside for a year. But since April the price action has more or less paused. Wheel-spinning, but no drops.

The problem with that is the 3-qtr. avg. is catching up and the momentum action of the past few quarters has set up a pending triple -bottom breakout just below. Or, we should say, for price, just above. Why?

The momentum pullback low registered in January was 11% over the zero line; then came a lovely rally. Price made a new high in that rally, but not momentum. Then the low reading in March (Q2) was also 11% over the 3-qtr. avg. and again followed by a rally. A new marginal price high, but still no new momentum high.

The key now is the red horizontal 11% over the zero line. Trade to 10% over the rising quarterly mean and it’s a triple-bottom breakout. Next quarter it’s estimated that 10% over will convert to a price of 4259. Meaning that if caught trading at or below what is so far this quarter’s high, this long-term momentum chart will break down. With next possible (though transient) support around the 3-qtr. avg. (a 10% drop just to get there).

The chart on your right displays the average monthly price of gold based on daily London PM Fix values. The average price thus far in June is $1,874.72. The 20-month average is $1,753.24 and the 40-month average is $1,534.79. While one can never say “never,” with the Fed in the predicament it is in now of needing to print trillions upon trillions of dollars to fund insane levels of federal debt, and not being able to allow interest rates to rise to levels in which foreigners would once again buy U.S. Treasuries, it’s hard to see how the dollar won’t continue to be massively debased and gold measured in dollars doesn’t soar to levels difficult to fathom as the dollar swoon inevitably continues. 

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.