by David Brady by way of Sprott Cash
We had the final FOMC assembly right this moment, and the Fed raised charges one other 50bp to 4.25-4.50%. This was already priced and was subsequently a non-event. The accompanying assertion was a shock given the diploma of hawkishness. It principally acknowledged that price hikes would want to proceed to carry down still-elevated inflation, brought on by a extra sturdy labor market, increased wages, and the consequences of the Ukraine warfare. However then Powell did it once more within the convention name, primarily reversing the hawkishness within the assertion.
At the least when Greenspan talked out of each side of his mouth, he did it with finesse. Powell’s confused and contradictory phrase salad made it virtually not possible to grasp what he was attempting to speak. Maybe that’s the reason markets principally ended up flat. Nobody is aware of what these guys are going to do subsequent, nothing has modified, or the markets simply didn’t imagine what Powell was saying. On the finish of the day, price hikes will proceed however at a slower tempo. Nothing we didn’t already know.
As well as, the mere point out of a proposal to lift the inflation goal from 2% compounded the dovish tilt, regardless that Powell acknowledged it was one thing they might solely take into account within the “long-term”.
Deciphering the ramblings of the Fed, we all know they plan to proceed to lift charges however at a slower tempo, with maybe 50bp to 75bp at most earlier than they’re achieved. However the nugget that caught out to me when it comes to significance was this remark from Powell:
“If markets ease monetary circumstances, the implicit notion there was that simply means we’re going to need to do extra to make monetary circumstances tight.”
In different phrases, the Fed wants monetary circumstances to mirror Fed tightening motion, in any other case the Fed loses any shred of credibility it has left. So as to guarantee this, Powell is saying that he’ll elevate charges even additional or improve QT, or each, if essential to tighten monetary circumstances. What indicators that monetary circumstances are tightening? Shares fall and/or bond yields rise.
In abstract, if the Fed is hawkish and shares go up and yields go down, Powell might want to drive shares decrease and yields increased. Given the muted response to what was maybe probably the most hawkish FOMC within the Powell period, this doesn’t bode nicely for shares particularly.
Nonetheless, again on November 2nd, Powell was clearly dovish when he confirmed that the tempo of price hikes going ahead would gradual. The market ended flat again then too, primarily ignoring what he stated. However the very subsequent day, November third, shares and valuable metals took off and the DXY accelerated to the draw back. What if the identical delayed response occurs tomorrow or Friday when choices expirations (“opex”) happens?
Timing apart, given Powell’s hawkishness right this moment, the danger is that every little thing however the greenback heads decrease and the DXY goes increased over the subsequent couple of days, and if not, the Fed will drive it to occur.
DXY
The DXY closed beneath 104 right this moment. That assist stage is damaged. This opens up a transfer right down to 102, however we could get a small bounce first. It’s already excessive oversold and positively divergent primarily based on the MACD Histogram in blue. Once more, I imagine this indicators a rebound to 108-110 within the subsequent few weeks.
GOLD
It ought to be no shock that Gold is the mirror picture of the DXY. Overbought and excessive bullish with a negatively divergent MACD Histogram in blue. Whereas DXY has remaining draw back to 102, Gold has upside to 1850-60 earlier than it capitulates. When it does, I’m on the lookout for the overdue pullback to fall to 1750 at a minimal and 1700 most in Wave 2. From there, again up the vans for what occurs subsequent: Wave 3!
SILVER
The Gold:Silver ratio continues to sign that it’s primed to rebound. It’s excessive oversold and positively divergent throughout all indicators. Which means Gold is getting set to outperform Silver within the subsequent few weeks or months.
Silver is excessive overbought and negatively divergent per the RSI and the MACD Histogram. The MACD Line is at its most overbought situation since Sept 2020 when Silver was at 29! It’s additionally its most excessive bullish because the peak in March at 27.50. It’s ripe for an enormous correction however should still go a bit increased. If Gold does make it to 1850-60, Silver may hit 25 or perhaps a little increased earlier than it dumps in spectacular style. I say this as a result of the Gold:Silver ratio indicators that when Gold falls, Silver will fall a lot sooner.
GDX
Miners have lagged the metals not too long ago. GDX continues to be fighting the 200-DMA. It’s bouncing round in overbought territory and negatively divergent per the MACD Histogram in blue. Aided by Gold, I nonetheless assume it may well hit 31-32 earlier than gravity takes over and heads right down to ~26 and the 50-DMA in Wave 2. Then get your buying record prepared for Wave 3.
SILJ
Silver is caught in two minds proper now. It’s a coin toss within the very short-term. Momentum is already waning in each the RSI and the MACD Line, whereas SILJ mimics GDX because it struggles with the 200-DMA. In the meantime, the MACD Histogram is clearly negatively divergent signaling decrease ranges to come back. That stated, we could have another increased excessive or it goes straight down. Both approach, it’s simply totally different routes to the identical vacation spot: to 10 and the 50-DMA at a minimal, imho. SILJ may be very unstable in each instructions. No matter the subsequent low seems to be, that can seemingly be Wave 2, after which it’s all programs go for a lot increased ranges to come back.
