Originally published on Sep. 28, 2022 by TraderStef at CrushTheStreet
Despite the late-season heads up and short-lived summer rally, there was an opportunity to trade the seasonal rally off a price pivot after publishing (Twitter thread) the “Gold and Silver Outlook for Summer 2022 – Part 2” on July 18. The predominant factor that’s putting pressure on precious metals price action since early spring is a series wicked dollar rallies that are discussed in a “Dollar Rally Induced Liquidity Crisis and a Late September Warning,” published (thread) on Sep. 9.
“The Fed seems to be under the mistaken impression that blowing up the global economy will somehow lead to a soft landing for the US.” – Sven Henrich
The dollar’s strength is also influencing the onset of a global recession that’s covered in “Welcome to the Most Anticipated Recession in History – Part 2,” published (thread) on Sep. 19. Here is a brief excerpt from my analyses in the summer outlook:
“The dollar (USD) has had a wicked rally since March that put downward price pressure across the commodities sector, but silver experienced an extra slap in the face due to its 50%+ exposure to industrial use… A lot of analyses are floating around that’s confident the current CoT set-up in silver is indicative of an imminent rally. That would coincide with typical summer seasonality, but it does not always materialize. The current Commitments of Traders Report (CoT) set-up vs. the last twenty years or so is very rare, but that does not guarantee a spectacular upside move… The bottom line is that you cannot rely heavily on futures rhetoric that routinely blames outdated manipulation narratives. Gold and silver are certainly in a technical and fundamental position to rally… but the buck stops at the spot price chart.” – TraderStef
My reasoning behind today’s gold and silver chart analysis is four-fold and complicated, as there’s a good chance that they landed into a bottoming zone due to geopolitical and monetary policy actions that surfaced over the last week. First, tensions and nuclear rhetoric that surrounds the ongoing NATO proxy war with Russia in Ukraine has deepened after referendum voting results in four of Ukraine’s eastern oblasts will annex them with the Russian Federation. Second, events surrounding the destruction of Nord Stream’s undersea natural gas pipelines in the Baltic Sea point to sabotage by the West. Third, Russia will shut down its Naftogaz pipeline based on non-payment of transit fees through Ukraine territory, which is the last Russian pipeline that supplies Europe. Lastly, the Bank of England (BoE) is the first central bank to pull the trigger and pivot from quantitative tightening (QT) to quantitative easing (QE), as pressure on the British pound and recessionary impacts due to a sanction-induced energy crisis forced the lords to begin buying government bonds in earnest today.
- Referendums: “Dark Age Winter of Discontent in Europe” Part 3 – TraderStef, Sep. 25
- Statement of the Russian Foreign Ministry on Referendums Result – VK, Sep. 27
- Possibility of Sabotage to the Nord Stream Pipelines – Tucker Carlson
- Russia’s sanction of Naftogaz pipeline a fresh blow to Europe – Reuters, Sep. 28
- BoE Actions on Concern Cash Calls Will Trigger Crash – Bloomberg
- Referendum results for Russian annexation claim victory – Euronews
- Bonds, Stocks, Bitcoin, & Bullion Soar After Brits ‘Save The World’ – ZH
- Nuclear Conflict Rhetoric Ramps Up – TheDuran
To view a larger version of any chart below, right-click on it and choose your “view image” option. Here are a few quotes and one chart that caught my attention in the last 24 hours:
Chart: Total Public Debt Multiplied by Fed Fund Rate. “They broke it, but don’t know it yet. Time bomb.” – Patrick Karim, Sep. 27
Let’s move on to the gold and silver charts. Be mindful that a window of opportunity for swinging or scalp trading paper ETFs, mining stocks, or futures contracts does not necessarily equate to the timing for buying physical metal as a long-term investment or insurance policy for your family’s future.
Gold Spot weekly chart as of Sep. 28, 2022 5pm ET…
Excerpt from the May 31, 2022 weekly gold chart analysis:
“In late March, an explosive rally took hold in the USD and paralleled the U.S. stock markets third wave down… Gold is not out of the woods. Unless a major geopolitical or financial news event jolts gold out of spring seasonality before the end of June, expect volatility and consolidation to continue a while longer.”
Excerpt from the July 18, 2022 weekly gold chart analysis:
“The Plunger Candle (aka Shooting Star) that printed in March was a reliable indicator that a correction was coming. The subsequent Down Channel is clearly defined on the chart. An explosive stage in the USD rally pushed gold down through several support areas… The weekly chart is not a glorious sight, but it’s more positive than silver while holding above the lateral confluence of support… The next two weeks will impact markets with the Fed’s FOMC meeting next week and the war in Ukraine is set to escalate. The gold chart is neutral as the confluence of support is holding, but could turn bullish in the near-term if the USD remains subdued and/or the Fed provides any hint of backing off the interest rate peddle as the recession takes hold.”
Persistent inflation moved the Fed to lift interest rates again in July, but the market interpreted negative GDP growth in 1Q22 and 2Q22 as recessionary and the Fed’s July FOMC commentary as hints of a pivot from QT to QE or a pause before the end of 2022 (aka Taper Caper). That sentiment gave the stock market a reason to rally, which provided gold with the seasonal tailwind in mid-July to pivot off the $1,680 low and 200 Exponential Moving Average (EMA) to print an $1,808 high in mid-August. The dollar rallied again and gold rolled over and breached the lower 2018 trendline, 200 EMA, and 38.2% Fibonacci level. This week’s low at $1,615 (just above $1,611 lateral support) did not last long following the BoE’s pivot to QE this morning, which spiked gold to a high of $1,663 by lunch time in New York. There’s now the potential for a Hammer Candle to close the week’s price action with a bullish reversal.
The DMI-ADX remains in a negative trend but reversed to positive on the 4-hour candlestick chart, the Momentum, Money Flow, and Commodity Channel Index (CCI) remain unremarkable, StochRSI is threatening an upward thrust after being stuck in oversold territory, and this week’s total Volume might surge beyond the bars printed over the last several weeks. Note that there hasn’t been a Death Cross of the 50 & 200 EMA. If positive sentiment sticks and central banks follow BoE’s pivot sooner than later, monetary policy alone will rally the metals no matter what the geopolitical situation is. On the other hand, if somebody pops off a tactical nuke, gold and silver will rally hard and not care what the central banks do or not do. Gold is still not out of the woods and the chart is neutral until the DMI-ADX reverses to a bullish strength-of-trend signal. In the meantime, there will be opportunities in the near-term to scalp any upside price action.
Silver Spot weekly chart as of Sep. 28, 2022 5pm ET…
Excerpt from the July 18, 2022 weekly silver chart analysis:
“The first week of March printed an indecisive Spinning Top and the subsequent Down Channel broke through $21.49 lateral support during a concurrent spike in the dollar. Similar to the gold chart, silver is resting upon a confluence of support that includes highs from late 2020, a 61.8% Fibonacci retracement level at $18.70ish, and the lower trendline of a busted Down Channel that’s drawn back to 2021. The set-up on the DMI-ADX, StochRSI, Momentum, and Money Flow are identical to the gold chart. The Volume is unremarkable. There are signs on the hourly and daily chart (not shown) that silver’s correction could be in the process of ending. I have laddered positions into the $SLV ETF since late June, as the paper market has fallen into the all-in-sustaining-costs (AISC) abyss of silver mining production. Meanwhile, retail premiums on physical bullion coin are sky-high and supplies are intermittent since the summer of 2020.”
Silver followed gold’s short-lived seasonal rally from an $18.12 low in mid-July to the $20.83 high in mid-August. A subsequent $17.53 low printed during the last week of August and rallied to a $20 high by mid-September. This week’s low was $17.95 and spiked to a $19.02 high following the BoE’s pivot to QE monetary policy today . A bullish Descending Broadening Wedge pattern has formed that’s drawn back to June and silver’s lows are bouncing along the same confluence of support noted in July.
The DMI-ADX remains in a negative trend but reversed to positive on the 4-hour candlestick chart, the Momentum, Money Flow, and Commodity Channel Index (CCI) are rising but muted, StochRSI is in positive territory since late July, and Volume is unremarkable. Note that there hasn’t been a Death Cross of the 50 & 200 EMA. In order for silver to end its current malaise, it must breakout from the Descending Broadening Wedge, the $21.49 lateral, and leave the 50 EMA in the dust. The chart is neutral until the DMI-ADX reverses to a bullish strength-of-trend signal. In the meantime, there will be opportunities in the near-term to scalp any upside price action.
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