A NOTE TO GOLD AND SILVER BULLS: YOUR GIG IS UP
The bell is ringing for the gold and silver bulls. It doesn't mean that a top is due tomorrow at 11am. However, we are getting close to a point where both technical and fundamental factors may begin exerting their influence over gold and silver prices. Not to the upside, either.
Let's look at gold and silver from a fundamental standpoint, if that is at all possible. There are three factors that are influencing the gold and silver trade on the upside at present:
1. The inflation trade
2. The fear and panic trade
3. A weak dollar
We are entering a point where market participants have awakened to the fact that a continued decline in the markets and therefore, the global economy could have deflationary consequences that end up breaking the inflationary mechanism that is driving gold and silver prices higher.
A continued decline in the markets would also serve to boost the US Dollar, similar to the price action we witnessed in 2008 in both gold and USD. Until something better comes along, the USD will always be the reserve currency of last resort when full scale economic, deflationary panic sets in. We are growing closer to that point with each percentage point that the S&P 500 gives up.
The fear and panic trade that is driving gold and silver prices will abate with a significant bounce in the markets. I don't think we are at a point yet where that will occur, but we are closer now than we were on Wednesday. The fear premium that is driving gold and silver will disappear rapidly with a multi-week bounce.
The main point here is that gold and silver are both caught at a point in their bullish life cycle that macro forces may create an iron ceiling overhead that become impenetrable over the intermediate term. Both the bull case and the bear case have great potential to drive gold and silver lower.
With that being said, I would like to see one more spike up. A panic driven move into precious metals that sees gold approach 2000 and silver move above 50. That would be the point where bullish euphoria over precious metals would be at an apex, setting up for a substantial decline.
I will be watching. I will update the website once a trade is taken.
