Originally published Apr. 30, 2023 by TraderStef on CrushTheStreet
The price action in gold and silver is taking a healthy breather in a consolidation process before a possible seasonal rally this summer, and even the Financial Times shined a positive light on the pet rock’s fundamental and demand picture. “Very rare” precious metal heists are also in the news as 3,600 pounds of gold and other valuables were stolen via “illegal means” from Toronto’s Pearson Airport in Canada. Here’s an excerpt from the spring outlook (Twitter thread) with updated links:
“The Fed’s March FOMC monetary policy decision hiked interest rates another .25 basis points to save face with its inflation battle, amid a sudden and ongoing banking crisis (Part 1 thread, and 2 ‘s thread) as a de-dollarization (Part 1 thread and 2’s thread) of the dollar’s global currency reserve status accelerates. Gold and silver spiked on the Silicon Valley Bank (SVB) and Signature Bank bailout implosion in early March, then a bailout and partial bail-in of Credit Suisse with a shotgun wedding forced upon UBS. This week, Yellen expressed concern about ‘shadow banks’ that include things like hedge funds and money market funds. The #TaperCaper taking hold has put downward pressure on the dollar that provided gold and silver plenty of room to rally throughout March. In the meantime, retail stackers continue stuffing their safes with gold and silver coin, paper traders are piling into options because they ‘see scope for further gains as banking crisis turmoil boosts metal’s safe haven appeal,’ and central banks are still purchasing record amounts of bullion. Despite the collective West’s economic sanctions imposed on Russia due to NATO’s proxy war (Part XIII and thread) in Ukraine, Putin added 1 million ounces (31 tons) of gold to Russia’s sovereign stash of pet rocks.” – TraderStef, Mar. 31
- *FDIC TO PLACE FIRST REPUBLIC UNDER RECEIVERSHIP IMMINENTLY: REUTERS – Apr. 30, 3:30pm EST
Let’s move on to a technical analysis of the weekly charts for the dollar, gold, and silver. Be mindful that a window of opportunity for swing or scalp trading paper ETFs, mining stocks, or futures contracts does not necessarily equate to timing for buying physical bullion or coins (American Silver Eagle coin premiums are currently back in record-high territory), and a weekly chart focuses on the potential price movement for a few weeks. To view a larger version of any chart below, mouse over it to select it or right-click and choose a view image option.
Seasonality for gold and silver futures as of Apr. 28, 2023…
$DXY Dollar vs. Gold Spot weekly chart as of Apr. 28, 2023 close…
The USD rallied off a Double Bottom in 1H21 and accelerated in March 2022 after the Fed launched a hawkish quantitative tightening (QT) monetary policy and began hiking interest rates. The rally ended in late summer through fall 2022 after the Fed hinted that an end to its aggressive rate hikes was on the table (aka Taper Caper). The dominant pattern is a bearish Head n’ Shoulders with a neckline around 101.00. Last week’s price action closed at 101.62. If the neckline is breached with conviction on high sell Volume, gold will likely rally beyond its $2,070 to $2,075 all-time high zone. If a hard-landing recession prompts the Fed to launch a version of quantitative easing (QE), be aware that large speculators and institutionals’ might liquidate some gold positions for cash to cover margin calls if financial markets spike to the downside. A similar situation played out during the great financial crisis (GFC), but gold pivoted well before stock indices printed their lows and outperformed with a higher high before stock markets regained loses.
The DMI-ADX is set up for an Alligator Tongue power trend as the dollar threatens to decisively break below the Head ‘n Shoulders neckline. The StochRSI already tapped a partially oversold condition that may take an extended period of time for both indicator lines to bottom out. There are many factors to consider regarding the dollar that include but are not limited to billionaires like Stanley Druckenmiller taking aim at shorting the weaponized dollar, an acceleration of de-dollarization, the debt ceiling battle on Capitol Hill that could trigger a technical default on U.S. sovereign debt, a potential U.S. credit rating downgrade, the ongoing financial blowback on the West due to supporting the war against Russia, possible rare earth element trade sanctions by China due to tensions over Taiwan, a deluge of negative economic reports if the economy slides into a deep recession, and more banking contagion since First Republic is on the precipice of failure.
The Real Reason Gold Hasn’t Exploded… “The strong dollar has been driven by a demand for dollar-denominated collateral, mostly U.S. Treasury bills, needed as collateral to support leverage on bank balance sheets and in hedge fund derivatives positions… As banks scramble for scarce collateral, they need dollars to pay for the Treasury bills. That fuels dollar demand. The scramble for collateral also speaks to fears of a banking crisis in the wake of SVB’s collapse, weaker economic growth, fears of default, decreasing creditworthiness of borrowers, and fear of a global liquidity crisis. We’re not there yet, but we’re getting close with no relief in sight. As weak growth turns into a global recession, a new financial panic will be on the horizon. At that point, the dollar itself may cease to be a safe haven, especially given the aggressive use of sanctions by the U.S… (de-dollarization). When this panic hits and the dollar is deemed no longer reliable, the world will turn to gold… Behind the curtain, a new liquidity crisis is brewing. Investors should consider today’s prices a gift… before the real safe haven race begins.” – Jim Rickards, Apr. 12
Gold Spot weekly chart as of Apr. 28, 2023 close…
Excerpt from Mar. 1, 2023 weekly (thread) gold chart analysis:
“A Broadening Right-Angled Descending Formation pattern has developed since the 2020 high and subsequent price chop… Upward breakouts from that type of pattern occur roughly 64% of the time. Gold rallied a remarkable $345 within an Up Channel after the pivot off a Triple Bottom consolidation above the $1,611 lateral support… The FOMC rate hike and Fedspeak sparked a rally in the dollar that launched a healthy pullback before $1,980 could be challenged. There were a Spinning Top and a Rickshaw Man (aka Doji candlesticks) close in the preceding two weeks, which was a heads-up that a correction in the near term was possible… Gold printed a low of $1,805 during the London open on Feb. 28 and is trading at $1,840 late this morning… The chart is neutral until $1,980 is taken out with conviction. Remain cautious of geopolitical and economic news-driven volatility while scalping intraday trades. Support is currently at the 50 Exponential Moving Average (EMA) level, and some price consolidation is likely before the next FOMC announcement on Mar. 22 that includes a summary of economic projections.”
Excerpt from Mar. 31, 2023 weekly (thread) gold chart analysis:
“There were two weeks of consolidation above $1,810 before a pivot off the 50 EMA found its legs… A subsequent thrust to the upside occurred when SVB news hit the headlines and never looked back, which resulted in a $200 rally that printed a $2,010 high during the afternoon of Mar. 20 at the recent high of the Ascending Scallop. Another consolidation is taking place at $1,980 resistance/support… The take out of $1,980 was not decisive and short-lived following a powerful rally that’s in overbought territory and requires a breather. The all-time high at $2,070+ is the next major resistance level. Seasonality dictates that further gains are possible before the price action consolidates through mid-spring into early summer… There’s potential for gold to embark upon a powerful secular bull run when $2,077 is left in the dust. The chart is bullish, but I remain neutral until the current consolidation finds a direction through spring.”
Gold printed a $2,049 high three weeks ago, a low at $1,969 two weeks ago, and closed at $1,989 last week. The price action has continued upward along the Ascending Scallop until consolidating at the highs within a bullish Flag Tilt since mid-March. As expected, the $1,980 level is substantial resistance. Thus far, the current breather within a flagging pattern is a healthy development. There is very little resistance left between $1,980 and the all-time high zone between $2,070 and $2,075 at the Broadening Right-Angled Descending Pattern’s topside trendline.
The hot mess at First Republic Bank (FRB) is on course to become the third American lender to fail in 2023 (plus Credit Suisse in Europe), which is a sequence of events that’s eerily parallel to the GFC. If this weekend’s auction does not result in a clean takeover by another bank or two, the FDIC will step in and place it under receivership. The FOMC is meeting this week and will announce its next monetary policy move. This situation mirrors what happened when SVB and Signature Bank went under in March. FRB and the FOMC announcement will certainly impact the dollar, gold, and stock market sentiment this week.
The DMI-ADX is in an extended bullish Alligator Tongue power trend setup, StochRSI is in overbought territory but can remain there for an extended period of time, Momentum, Money Flow, and the Commodity Channel Index (CCI) are flat but remain elevated, buy volume has risen over the last three weeks, and the EMAs are still lined up in a bullish trend. The $2,070+ level is the next major resistance if $1,980 is left in the dust. The chart is bullish, but I remain cautious until the current Flag consolidation finds a direction and the all-time high is left in the dust.”
Silver Spot weekly chart as of Apr. 28, 2023 close…
Excerpt from the Mar. 1, 2023 weekly silver chart analysis:
“Silver spot printed a high of $24.62 going into the February FOMC monetary policy announcement and rolled over into a correction with gold as the dollar rallied and closed with a long-wicked Marubozu Candle (aka Plunger Candle). The subsequent price action violated all the EMAs and found support at the 200 EMA, the confluence of two Fibonacci levels, and an overhead trendline drawn back to Mar. 2022 when it closed last week at $20.72. So far this week, silver printed a high of $21.16 today and is chopping around $21 as I type. All other studies are nearly identical to the gold chart. Silver is neutral until the overhead 50 EMA is taken out again and the Descending Broadening Wedge’s topside trendline is decisively breached. Remain cautious of geopolitical and economic news-driven volatility while scalping intraday trades.”
Excerpt from the Mar. 31, 2023 weekly silver chart analysis:
“Following two weeks of consolidation below the 200 EMA, silver blasted through the 50 EMA without hesitation on the SVB implosion. The rally has not had a breather on the weekly chart but has hit a $24.15 resistance at the Descending Broadening Wedge’s topside trendline just above the 50% Fibonacci and lateral resistance due to the choppy price action from Dec. 2022 and Jan. 2023. The next resistance level is $25.70 to $26. Seasonality dictates a pullback beginning in mid-April until early summer and reasons to be Johnny-on-the-spot if trading is the same provided in the gold analysis. There could be a powerful rally if silver leaves the Descending Broadening Wedge’s topside trendline in the dust. The chart is bullish for early April but neutral into mid-spring unless SHTF and the price action rallies with gold.”
Silver breached the Descending Broadening Wedge’s topside trendline during the first week of April and tapped the $26 resistance three weeks ago at the 23.6% Fibonacci level. Like the gold chart, the price action continued upward with the Ascending Scallop but is consolidating within a Half-Staff Flag instead of a Flag Tilt. Last week’s candle closed as a bullish Long-Legged Doji that could be indecisive in the near-term leading to a bit more downside or lateral chop. The supply and demand fundamentals for silver favor higher prices soon as a historic deficit with surging demand is fast approaching. Note that recessionary pressures could temporarily suppress silver’s price since 50%+ of its demand is industrial use. That scenario could mirror any downside in gold if large speculators sell gold contracts for cash liquidity to cover margin calls in a plunging stock market.
The DMI-ADX is in an extended bullish Alligator Tongue power trend setup, StochRSI is in overbought territory and can remain there for an extended period of time, Momentum and the Commodity Channel Index (CCI) are flat after rising in the recent rally, and the Money Flow is just getting started. The EMAs are still lined up in a bullish trend, but the volume remains unremarkable. The next resistance level is between $27.50 and $29. The chart is bullish, but caution is warranted until $29 and $30 are decisively left in the dust.
BANKING CRISIS UPDATE May 2: Half of America’s banks are potentially insolvent – this is how a credit crunch begins… The twin crashes in US commercial real estate and the US bond market have collided with $9 trillion uninsured deposits in the American banking system. Such deposits can vanish in an afternoon in the cyber age. The second and third biggest bank failures in US history have followed in quick succession… Almost half of America’s 4,800 banks are already burning through their capital buffers. They may not have to mark all losses to market under US accounting rules but that does not make them solvent. Somebody will take those losses. ‘It’s spooky. Thousands of banks are underwater,’ said Professor Amit Seru, a banking expert at Stanford University. ‘Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.’” – Ambrose Evans-Pritchard at The Telegraph
Former Trump Economic Adviser Gary Cohn Discusses First Republic Bank – Face The Nation, Apr. 30
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