Trouble is brewing that has the potential to rock the economy, politicos on Capitol Hill, Fauci and his cohorts, the Federal Reserve, monetary and fiscal policy, geopolitics, and U.S. national security. Making an educated guess about what event would trigger a critical mass situation is a fool’s game, as so many triggers are being pulled simultaneously that a breaker switch may not be readily recognized.
On Nov. 8, the Fed published its latest Financial Stability Report and warned that valuations in financial markets are vulnerable and may lead to significant declines. The report’s framework revolves around asset valuations, borrowing by businesses and households, leverage in the financial sector, and funding risks. Sub-topics are broad, international in scope, and potential shocks are difficult to determine. Readers should review the entire report. Here is an excerpt:
“While this framework provides a systematic way to assess financial stability, some potential risks do not fit neatly into it because they are novel or difficult to quantify. In addition, some vulnerabilities are difficult to measure with currently available data, and the set of vulnerabilities may evolve over time. Given these limitations, we continually rely on ongoing research by the Federal Reserve staff, academics, and other experts to improve our measurement of existing vulnerabilities and to keep pace with changes in the financial system that could create new forms of vulnerabilities or add to existing ones.” – Federal Reserve
Fed Warns of Peril in Run-Up of Risky Asset Prices…“Also flags concerns tied to Chinese real estate… The Federal Reserve is warning that prices of risky assets keep rising, making them more susceptible to perilous plunges if the economy takes a turn for the worse, and cited stablecoins as an emerging threat. ‘Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall,’ the Fed said in its twice-yearly Financial Stability Report released Monday.” – Bloomberg, Nov. 8
While the world itches to trip a breaker switch, board members at the Fed are jumping ship at a record pace and Chairman Powell’s term ends in Feb. 2022.
Board Members Fleeing the Federal Reserve… “We saw two Fed presidents resign in October amid scandal. Randal Quarles recently announced he also plans to resign from the Fed’s Board of Governors when his four-year term expires at the end of the year. Another position remains vacant as well. A third position for the central bank will open up in January when Vice Chair Richard Clarida’s term expires. Fed Chairman Jerome Powell’s term ends in February, and Biden has not stated whether he plans to renominate Powell. Rumors are swirling that Biden may appoint Lael Brainard as she is the only Democrat on the seven-member board… These people are making decisions that shape the entire world economy. Unfortunately, it seems as if many of the qualified individuals no longer want the job due to Biden’s mismanagement of the economy.” – Armstrong Economics, Nov. 11
Three recent examples of exogeneous events that could trigger a market rout and additional geopolitical chaos are the following:
EU accuses Belarus of ‘gangster’ methods as migrants shiver at Polish border… “Poland and other EU member states accuse Belarus of encouraging the migrants – from the Middle East, Afghanistan and Africa – to illegally cross the frontier into the EU in revenge for sanctions slapped on Minsk over human rights abuses… Prime Minister Mateusz Morawiekci, who earlier visited Polish troops stationed at the border, said the migrants were being used by Belarus as part of ‘a new type of war in which people are used as human shields.’ Lukashenko’s government, which is backed by Russia, denies engineering the migrant crisis and blames Europe and the United States.” – Reuters, Nov. 9
Iran-Backed Militants Storm US Embassy in Yemen, Seize Hostages and Equipment… “The State Department is working to secure the release of several kidnapped hostages taken by Iran-backed terrorists just a day after the militant group stormed the U.S. embassy facility in Sana’a, Yemen… The State Department confirmed to the Free Beacon that the Yemeni staffers are being detained without explanation and that the Iran-backed militants stole property after breaching the American facility.” – Washington Free Beacon, Nov. 11
U.S. Warns Europe That Russia May Plan Ukraine Invasion… “With Washington closely monitoring buildup of Russian forces near Ukrainian border, U.S. officials briefed EU counterparts on their concerns over a possible military operation, according to multiple people familiar with the matter.” – Bloomberg, Nov. 11
Let’s go to the gold and silver charts. Consider reviewing “Gold and Silver Are Not Out of the Woods” published on Oct. 22 (Twitter thread), and Incrementum’s “In Gold We Trust” 2021 Chartbook. To view a larger version of any chart below, right-click on it and choose your “view image” option.
With the Fed on a trial-run Taper of only $15 billion being removed from the $120 billion in monthly purchases of mortgage-backed securities and U.S. Treasury debt, nominal interest rate policy at zero-bound (ZIRP) until 2022-2023, and inflation running hot, the 10 Year Treasury real interest rate plunged deeper into negative territory (NIRP). The downside breach through the neckline of a Head ‘n Shoulders formation on the chart noted below was a good signal that gold would run through its $1,830 overhead resistance. Notice that the Head ‘n Shoulders pattern coincides with the chop and consolidation on the gold chart since Aug. 2020.
Gold Spot monthly vs. 10 Year U.S. Treasury Note real yield – Nov. 5, 2021 close…
Gold Spot weekly chart as of Nov. 11, 2021, 5 PM EST…
Excerpt from the Oct. 22 weekly gold chart analysis:
“The dominant feature on today’s weekly chart is the topside trendline drawn down from the Aug. 2020 high. The price action has been constructive and continues to consolidate after the Eve & Adam Double Bottom, and the bullish Hammer Candle at Adam’s low printed a large $80 tail. That tail is indicative of strong dip-buying off the Fibonacci at $1,680. Conversely, strong resistance since mid-summer is obvious at the $1,830 level … Pay particular attention to the overhead $1,830 resistance area for any breach on decisive buy volume that carries the price action through the topside trendline.”
Gold is still not out of the woods despite a price rally through the $1,830 overhead resistance and printing a high of $1,868 on Wednesday. The weekly candlestick breaking above an Inverse Head ‘n Shoulders neckline and topside trendline drawn back to the Aug. 2020 high might look decisive, but it did not occur with a coincident spike in buy Volume. That does not mean an upward trend cannot continue in the near-term, but odds are higher for a Momo move when large buy Volume accompanies a rising price. There is one day left in the week to add Volume and at least match the previous week.
The 10, 21, and 50 Exponential Moving Averages (EMA) remain stuck together and are just beginning to turn upwards. The DMI-ADX is not set up for an Alligator Tongue upside power trend, but the DMI’s green line is peeking above the red line. The StochRSI has spiked into a shallow overbought condition, the Money Flow is starting to turn upward, but Volume is not indicative of substantial buying.
The chart remains bullish near-term if a brief consolidation on the daily chart is followed by an increase in buy Volume and the price action challenges $1,920 without hesitation. The chart is ripe for scalping sweet spots. It is prudent to wait for a decisive break through $1,980 before layering large paper positions.
Silver spot weekly chart as of Nov. 11, 2021, 5 PM EST…
Excerpt from the Oct. 22 weekly silver chart analysis:
“The chop and consolidation pattern in silver continues within a High ‘n Tight Flag since Aug. 2020. That flag is getting long in the tooth and will morph into something else unless $30 is taken out sooner than later. Take note that the flag’s lower trendline is support and it sits upon the $21.49 lateral breakout with seven years of chop and consolidation beneath it. A Descending Broadening Wedge developed throughout this past summer, and its topside trendline was finally breached this week… The chart is ripe for scalping sweet spots… If the 50 EMA is taken out with conviction, expect a quick sprint to $26 in the near term. Any longer-term analysis is a moot point until $29 and $30 are taken out.”
Silver is still not out of the woods either, despite a price rally through the overhead 50 EMA and printing a high of $25.26 today. A positive sign that $26 could print in the near-term is if the price action remains above $25 at Friday’s close. The EMAs and lower studies are nearly identical to the gold chart, with the exception of silver’s Volume still looking pathetic in comparison. I cannot stress enough how important it is that a substantial rise in buy Volume take place to sustain the current upside momentum. A stair stepping pattern with brief consolidations between $25 and $29 would be very bullish.
The silver chart is ripe for scalping but refrain from layering large paper positions until $29 and $30 are left in the dust.
“Aggressively” hold gold & real estate as Fed’s QE a “failed experiment” – Danielle DiMartino Booth, Oct. 27
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