Biggest Dollar Streak
If Picasso were interested in painting bullish charts as a career move, and had asked to see previous designs by the likes of Leonardo da Vinci, they’d look kind of like this.
This is a near-perfect pattern for a bullish breakout. No, not sometime in the future, but NOW, as in the next 90 days.
What you see is a triple-test of the resistance level at $2,000/oz and two retracements to the support at $1,700, and even a failed attempt to break down to the $1,500s.
The breadth of the range ($2,000 – $1,700 = $300) is the likely breadth of the breakout, implying that gold could surge to $2,300, given the right catalysts:
- Recession fears turn into recessionary data.
- Rate cuts (May or June).
- FED Intervention to accelerate the over-tightening of the credit markets.
What made Jerome Powell confident that he could turn dovish in the last meeting is that the banking crisis was like a passing of the baton from the central bank to the free markets, in all matters of credit.
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The FED tightened and kept tightening, but some money managers wagered bets and gambled that the FED would pivot or capitulate, before they’d have to realize any losses.
When a fund does it, the investors who signed up for the risk take the hit.
When a bank’s asset managers do it, the depositors, who understand that putting money in the bank does carry some risk, but not that of seeing their deposits wiped out, LOSE EVERYTHING.
After SVB, the risks of betting against the FED have been made clear.
Banks are adjusting, money managers are tweaking and the financial system is much more in line with the appropriate levels of liquidity needed to survive 2023.
The main takeaway from SVB is that the FED doesn’t need to act aggressively in the months ahead, because credit markets have taken over.
While the FED is programmed to act gradually and slowly and to give enough forewarning about its intentions, which it does very well, the free markets are erratic and snap at an instant.
This is the reason uncertainty is now ELEVATED.
The reason that history shows that the FED can’t manage a rate hike cycle without triggering a credit event is because, by definition, the FED operates in a way that REQUIRES them to keep at it until market conditions are on par with the FED’s thinking.
As you can see above, the FED is trying to stop the worst inflationary period since the 1970s, yet what Americans are choosing to do is hold cash, a complete paradox, but a reality nonetheless.
Had the public preferred gold, they’d fare much better, but you can’t win them all…
When the public rushes to cash to such an extent, the FED has to eventually ease the financial conditions, since hoarding cash is a sign the public is bracing for a recession.
Therefore, in the months ahead, I expect:
- Plenty of volatility.
- Real signs of no growth and perhaps a recession.
- Gold’s outperformance.
- Dollar’s underperformance.
And, best of all, a real bottom for market and the birth of the recovery. At the end of the day, everyone wants a prosperous society (any normal person, at least), and ultimately, this is coming… Spring follows winter.
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