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Midweek Market 2 April 2020

Apr 2nd, 2020

Executive summary

The bear market continues to unfold.

This is a collapse that history will likely blame on the ‘death of currencies’ caused by a hundred years of malpractice by governments and central banks in creating ‘currency’ out of nothing. And this collapse is likely to be greater than any other collapse in history, and with greater consequences. In simple terms, the core problem is that money value (measured against gold) is collapsing, and when confidence in the fake money system is finally lost, a new international monetary system has to be created based on gold.

All this is great for gold, but as the chaos and collapse escalates so too will gold collapse with everything else. The true gold bottom will be reached when confidence in the fake money system finally collapses. But there is a way to go yet. Because, guess what, in this environment of deepening gloom the US dollar is seen as a ‘safe haven’ and is rallying to new highs (rate cut and all). However, the fate of the dollar and US Treasuries are closely linked, and the excessive (and artificial) over valuation of the US bond market will eventually lead to the collapse of both.

US Dollar

The US$ is in long term decline but has been in a rally since 2008 with a recent strong rally since 2018 to a new high which could also exceed the previous high at the start of 2017. The very recent dollar indication of the start to a potential weakening phase will have to wait as, for a while yet, dollar value will correlate inversely with US equities. The current US equity correction up is very near completion which has the dollar very near to further strength. This dollar / equity dynamic may well soon change the structure of the above chart until more meaningful loss of confidence in the present international monetary system changes it back to long term dollar weakness.

This applies also to US Treasuries and therefore the US bond market, as interest rates and the dollar are closely linked. The excessive over valuation of the US bond market will lead eventually to the collapse of both the bond market and the dollar.

The dollar is starting to turn up as demand increases with equities close to the end of the current upward correction.

The dollar turns up after playing out the sell divergence, as dollar demand starts to increase with equities potentially starting to turn down. This is a pivotal moment.

The short term 3 month chart illustrates the dollar poised to breakout. It turns up and is supported by the 50-Day MA (red).

EuroDollar

The Eurodollar, as the virtual opposite of the US dollar index, turns down after advancing in playing out the buy divergence.

US Treasuries

The benchmark 10 year US Treasury yield continues down towards its previous low point, as US Treasuries rise toward their previous high point. We are now close to the pivotal point at which US interest rates will start rising and the bond market will start declining in tandem with the equity collapse and the inevitable onset of recession. Yield declines below the previous low point will obviously delay any such turning point.

Short term US Treasury yields bounce up off zero, such as the 3 month yield in quickly rising to 0.09%. This 3 month rate is usually the one that guides the US Fed into rate decisions, which means they probably cannot justify another rate cut at the moment whether equities start to drop again or not.

The US jobs report comes out tomorrow, and this time it may have a profound effect on yields!!!

Gold

The sell divergence is still active and therefore gold will still go lower after the recent rally. The next gold bull market will drive price many times higher, but only after further declines to new lows first. These lows will finally signal an end to the gold bear market in a world of approaching monetary and political chaos.

The 5 year weekly chart highlights the sell divergence is still active despite the snap-back rally. The gold price is actually starting to decline from the peak of snap-back rally and this should continue from here, probably driven by severe declines in the miners.

The 12 month chart illustrates the sell divergence and snap-back rally in more detail, with repeat declines now becoming evident after the snap-back rally.

Gold declines start to gather a little momentum, although reaching support at the confluence of 10-Day and 50-Day MAs. The bearish double top will assist declines, once activated.

South African Rand

The dollar peaks against the Rand at new lows, which continues to look fragile and volatile. This is likely to now become the new normal with a stronger dollar and especially also with very weak Rand fundamentals, such as rating agency downgrades.

HUI / Gold Ratio

The ratio is consolidating in partial recovery after the declines in the wake of the sell divergence, some way still below the 50-Day and 200-Day MAs. This indicates US miners (HUI) are tending to move in tandem with the gold price until more divergent breakaways occur in either.

HUI The Arca NYSE Gold Bugs Index

The HUI itself looks poised to drop significantly, as well as the other US miner indices. Penetrating down through the key support level at 185 will drop price down to test the March low at 142.50. That is significant, and it may be that the miners trigger significant falls in the metals.

GDX US Gold ETF

This same dynamic is event in the GDX, and penetrating down through the key support level at 23 will drop price down to test the March low at 16.

This pattern is also similarly reflected by the GDX Juniors and XAU (charts not shown), although somewhat different in the inverse Dust chart which is shown next.

Dust US Miners Bear Index

The buy divergence in the US Miners bear index (Dust) of last week has led to the start of higher prices. This is an indication of higher Dust prices which amplifies the potential for significantly lower prices in US miners, which in turn has the potential for reducing metal prices.

Silver

Long term silver continues to trend lower, despite the recent rally which broke back up through the previous low point of Dec 2015 at $13.60. Despite this the chart has a negative bias and the trend continues down in a continued major non-confirmation with gold, as silver leads the price declines. As with gold, the next silver bull market will drive price many times higher, but only after further declines to yet lower lows first. These lows will finally signal an end to the precious metals bear market in a world of approaching monetary and political chaos.

The silver snap-back rally in the wake of buy divergence underperforms gold, and therefore should lead to continued lower prices. A key pivotal level remains the previous major low point at $13.60.

The 12 month chart produced an earlier sell divergence and this has produced an early end to the recent rally and a resumption in price declines which should continue.

The 3-month chart illustrates silver’s recent rally end with a minor selloff, as the bearish trend starts to gain small momentum.

The Silver miners chart mirrors that of US gold miners, and is poised to drop significantly. Penetration of the key support level at 22.90 will drop price down to test the March low at 16. This is significant, and may well be the trigger to activate a selloff in silver itself.

Gold : Silver Ratio

The gold / silver ratio closed higher at 113.80, as the ratio continues to build higher again in a chart that continues to present an upward bias. All this indicates a continued era with substantial silver underperformance which remains negative for metal prices.

General Equities
The bear market continues to unfold.

Using the Dow Jones Ind Ave as a proxy for general equities, one can see the potential completion of the first major leg down as well as the potential completion of the first major correction up. This is likely to continue in a series of down legs and up corrections, some stronger and some weaker, in a time frame which is likely to unfold over most of the next decade.

This is a collapse that history will likely blame on the ‘death of currencies’ caused by a hundred years of malpractice by governments and central banks in creating ‘currency’ out of nothing. And this collapse is likely to be greater than any other collapse in history, and with greater consequences. In simple terms, the core problem is that money value (measured against gold) is collapsing, and when confidence in the fake money system is finally lost, a new international monetary system has to be created based on gold.

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