Source, Seeking Alpha: Link to original article
Summary
- The 30-Year Bond interest rates are going higher at 2.162, up more than 2 percent. For the 10-Year Note, it is at 1.859, up 4.9 percent. Interest rates are moving.
- Chairman Powell is talking about tapering and said the Fed is going to be looking at interest rates hikes afterwards in order to fight inflation.
- Crude oil is at $87 a barrel for Brent oil. WTI is at $84.50. These prices are a drag on the economy.
- Silver is the canary in the gold mine and will probably go first.
- This idea was discussed in more depth with members of my private investing community, Mean Reversion Trading.
Fundamentals
The 30-Year Bond interest rates are going higher at 2.162, up more than 2 percent. For the 10-Year Note, it’s at 1.859, up 4.9 percent. Interest rates are moving up, particularly the short end of the market. The 10-Year Note is inverted, meaning that interest rates are moving up faster for short-term rates than long-term rates.
Chairman Powell is talking about tapering and said the Fed is going to be looking at interest rates hikes afterwards in order to fight inflation. The Dow Jones is down 500 points, Nasdaq down 264, and the S&P down, it indicates that a rise in interest rates is not good for the markets.
“Higher interest rates or the threat of them is going to put a damper on the economy,” Patrick MontesDeOca, Equity Management Academy CEO said.
Crude oil is at $87 a barrel for Brent oil. WTI is at $84.50. These prices are a drag on the economy.
It seems more likely that, if we see a rise in interest rates, it will be done once, maybe 25 basis points. The Fed will probably do the minimum to try to prove they are in control of the economy, but we already see what the markets are going to do if interest rates rise. Already the markets are close to having a tantrum again. The Fed does not want the stock market to go into a major correction, so the Fed will tread very carefully with rate hikes.
If you add the Omicron aspect with China locking down, it adds another drag on the economy. Russia’s threats against Ukraine and rising tensions with the US and Western Europe (NATO) only adds to uncertainty about the future of the world’s economy. Russia appears to be poised to invade Ukraine. This may be another black swan event that could disrupt the energy markets, which is in part why crude oil is near $90 a barrel. If the Ukraine crisis increases, we could see crude at more than $95 really fast.
A combination of factors is shaking the foundation of supplies across the board. Gold and silver could explode. Silver is the canary in the gold mine and will probably go first. Silver is the most undervalued asset in the world. It’s clear that the Fed is not in control of inflation and it’s still unclear if this inflation is going to be temporary or long term. Once you raise prices it is very difficult to lower them later. There’s a lot of uncertainty in a lot of areas.
It seems that we are in a time of transition and a change to a new economic system or level. It appears to be in the direction of Bitcoin and digital currencies. It seems just a matter of time before central banks begin to issue a digital currency in some form. A key question is whether any digital currency is going to be backed by anything other than government promises or will one or more be backed by gold or a basket of precious metals. China is already taking the lead on digital currency with an internal digital Yuan, which they’re using. There are many questions about whether tourists can use it and whether they can use it outside China, but it is clear that China’s central bank is ahead of the game. All they have to say is that it is backed by gold and they would be far ahead of any other monetary unit.
Precious Metals
Silver
We’re long silver from $22.81. Silver is breaking out, $23.47 last, up about 55 cents or 2.29 percent. There was a major reversal in silver this morning. Interest rates going up is not bearish for precious metals. In December 2016 the Fed raised rates and gold hit $1517 by July. We have been in a correction since August 2020, but now we have a huge bottom. This is just the beginning of a major rally to test the previous highs around $30. Silver is frustrating to trade. If you have been carrying silver since March 2020, it has been a challenge. But we are on the verge of a major move up. Interest rates going up is going to put a bottom in the precious metals markets. Silver has broken out of the daily VC PMI levels and is now heading for the weekly target of $23.99.
Gold is up. We bought a contract at $1815.20 just before the open today. We advised all our traders to take the daily Buy 1 signal from $1813 based on our Variable Changing Price Momentum Indicator (VC PMI). Gold completed the first target of $1818 and then backed off. Gold activated a buy trigger, so we recommend picking up more contracts.
Gold
Gold and silver are both poised for a major move up. If gold takes out $1874, then the next high would be the $1920 area. If gold goes beyond that, it would test $2062.
To learn more about how the VC PMI works and receive weekly reports on the E-mini, gold and silver, check out our Marketplace service, Mean Reversion Trading.
