While the Fed is almost powerless these days, as it has
succeeded in "painting itself into a corner," the markets still
seem to think that its utterances are important and react, sometimes
violently, to its apparent stance, or implied stance. For this reason we have
to treat Fed statements as important, even though they really aren't. Today
we have the Fed making pronouncements and the markets can be expected to
gyrate around and react as usual.
In general they are not expected to "rock the
boat." Powerful vested interests-what may be described as the status
quo-want Hillary Clinton as the next President, as she will serve as their
marionette and do their bidding. Trump can talk a lot, but even if he gets in
won't make much difference for two reasons. One is that he is the candidate
for the Republican Party, and the same plutocrats control the Republican
Party that control the Democrats-they are two sides of the same coin. So if
elected Trump will have to buckle down and do as he is told. If he tries to
seriously take on the military-industrial complex that runs the U.S. he will
end up like JFK. In any event, he has already indicated that he will yield
and comply, by talking about "beefing up our great military" and by
paying homage to "our great friend in the region (Mid-East)
Israel."
So whoever gets in, the outlook for the ordinary American
citizen remains hopeless, despite all the mindless pre-election hype and
razzmatazz. Of the two candidates the powerful vested interests, of course,
prefer Hillary, so we can expect the Fed to do as little as possible to upset
the markets ahead of the elections (i.e., nothing of any consequence). This
being so, today's Fed remarks might be greeted with a sigh of relief and
spark another up-leg in the broad market, which is now supported by a
gigantic slush fund.
Although at first sight it looks like we are being
presented with a buying opportunity in the precious metals sector, which has
reacted back over the past couple of weeks, we have to careful here. There
has been no major correction in this sector all this year, which is inflated
after months of rallying, and we will look at some evidence here that the
correction may have considerably further to go, in points terms if not in time
terms.
We will start by looking at the eight-month gold chart.
As we can see, although stocks have been slammed over the past couple of
weeks, gold has barely dropped yet, although it has broken down from a
Triangle as predicted at the start of the week in Gold and Silver Probable
Short-term Scenario. If the dollar rallies, gold could get whacked back
to the vicinity of its 200-day moving average, now at about $1,220. Such a
drop would lead to further heavy losses in PM stocks over a short-term time
frame, and would be expected to be followed by a reversal to the upside, and
thus present a MAJOR buying opportunity.
The latest gold Hedgers chart (a form of COT chart, shown
at the top of the article) shows an extremely lopsided situation that
normally calls for a significant drop, and it has contributed to our cautious
stance of recent weeks.
On the latest 8-month chart for GDX the sector looks like
it is at another buy spot. It may be, depending on how markets react to the
Fed later, but other factors such as the gold chart above, and sentiment
readings that we will look at in a moment, urge caution and suggest that
instead the sector could break down into a short-term plunge that sees GDX
correct back to the vicinity of its 200-day moving average. If the sector
reacts positively after the Fed, it will be in order to buy it, but prudent
to set quite close stops.
After the latest retreat the Gold Miners Bullish Percent
Index is still at an uncomfortably high reading of
75% bullish, which increases the risk that this
correction is not done yet and could end with a nasty flushout that will also
throw up a great buying opportunity.
One thing worth pointing out here is that it looks like a
breakout by Treasuries is imminent, and it may well be triggered by the Fed's
remarks today. On the 8-month chart for Treasury proxy TLT we see that the
neat Symmetrical Triangle that has been forming in recent weeks is now
closing up. Various factors suggest an upside breakout, although the gap
between the moving averages is now large, so the opposite outcome is
possible, depending on the market's interpretation of the Fed. . .
So let's see how the markets react after the Fed later
today.
Source: Clive Maund for The Gold Report
https://www.streetwisereports.com/pub/na/17078
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Charts provided by Clive Maund
