Gold & Silver Price Smash: The Only Thing On The Menu Today

First the good news.

If copper is finding a bottom in the short-term, the silver price can find a floor based on the “industrial use” aspect of the white metal:

Silver has two unique properties that, when comparing all other asset classes, are only seen in gold as well: Silver is money and silver is an industrial metal. If the copper price is turning up, as shown in the chart above, silver could start moving up in price as well, which it looks like it wants to do when compared with copper.

In addition to the industrial side of silver piggy-backing the turn with copper, The gold-to-silver ratio (GSR) is screaming “buy silver”:

From just a few trading days ago, the ratio has shot up, meaning that it takes way more silver to buy just one ounce of gold right now. Said differently, the ratio is getting extreme again, which means that silver could start moving quickly in price as more and more people decide to purchase silver over gold.

Last night we put out a post discussing the GSR, which is a great primer for those new to the precious metals.

We can see one of the reasons why silver has taken such a hit lately if we look at the action in the trading:

Make that lack of action. Yes, there is options expiration, but when the market is thinly traded, that adds to the cartel’s ability to smash the price. 

We have not even passed the full brunt of The Fed Offensive yet:

Once again, we can see there will be a triple attack, and just like Monday, we have morning, afternoon, and then early evening Fedspeak to deal with. If we can say the Fed will let up, they will do so only to a lesser extent because there are speeches on Thursday and Friday too.

In fact, when we look at gold and silver compared to the debt-based US fiat currency known as the dollar, the intent of all the Fedspeak has been clear:

The question is, why is “hawk” Yellen & Co. pumping the greenback now? As the dollar has done nothing but weaken all year, it seems as if the Fed is merely looking to slow the rate of the dollar decline for whatever reason. Are the markets really “fooled” into thinking the Fed is going to unwind it’s balance sheet, raise interest rates and let a morbid U.S. economy run hot?

Possibly, but it’s all weighted for December, 2017:

We have not even started October, there are still three full trading days left in September, and we don’t even know the integrity of the data CME Group is pushing anyway.

Looking at the dollar a little closer, we can see that it is about to start wreaking havoc on the number one silver exporter again:

After the earthquake struck Mexico on September 19th, we discussed how any strengthening against the peso would result in a drop in consumer spending in the United States due to U.S. families remitting funds to their families still in Mexico. Sure enough, the dollar surged against the peso yesterday and moved back above 18. With Mexico ending “search and rescue” efforts today, the assessment of damage and spending to replace both durable goods and basic goods is about to increase, just as the purchasing power of the peso is dropping.

If retail spending dips even further than expected over the coming month at the same time the dollar is strengthening, that would be further support of the thesis, and that dynamic can be added on to the many reasons mentioned in that article we put out about the dollar/peso social relationship. We shall be watching this closely because if one has an interest in silver, it goes hand-in-hand that one has an interest in Mexico.

The yield on the 10-year is not so sure, however, that all the “hawkish” rhetoric will translate into higher interest rates and an unwind of the balance sheet:

Does that yield look more like a dip in the face of continuously dropping yield? It does not because that chart is not bullish for those looking for an increase in interest rates. Said differently, the increase in the yield on the 10-year looks to be more of a dead cat bounce than the start of a new uptrend.

Over the last six months, the increases in yield have shown to be followed by slow, drawn out fades. If we are now four days into that fade, it could mean a slow grind lower. The wild card is the Fedspeak and what effects it could have on the market translating hawkishness into bullishness on the chart.

Besides, crude oil is not buying the strong dollar and hawkish Fedspeak at all:

Crude has just taken out the highs of May 23rd. If the dollar is strengthening, generally speaking, the price of crude should be dropping. This could lead one to the conclusion that either crude is in a break-out fake-out, or the dollar is in a dead cat bounce. Hope can crush a trading account on the quick, however, and any dollar bulls watching are surely well aware and taking cues from crude.

And so we close on the bad news since we opened on the good:

That is one big, fat, ugly bearish engulfing candle in gold on the daily. Since options expiry is not over yet, the very near term does not look good for those looking for price increases in gold. On the other hand, gold could be having one of the best door-buster sales of the year today and tomorrow. We will know on Friday whether it did or not. Timing is never easy in the short term, but the signals on the chart are clear.

And we finish the Midweek Update with two of the stocks that have been responsible for most of the gains in the stock market:

probably nothing…

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