Focus on the Big Picture

SHORT-TERM

A break of 1900 signals a move up to at least the 2000s in Gold. However, until that happens, the risk of a move down to 1770 again, or below, remains.

The same goes for Silver. A break above 26.10 signals a test of the prior high at ~30. Failure to break and close above 26.10 and we’re likely heading down to the 23s again.

BIG PICTURE

TECHNICALS

I’m watching the weekly MACD Line for confirmation that the bottom is in for both Gold and Silver.

There are two scenarios:

• Weekly MACD Line breaks its signal to the upside and the metals head up to new highs.

• Same scenario as #1, but this time after breaking up, the MACD Line retests its signal and in the process, we get a positively divergent lower low in price and then head up to new highs.

Same destination, but slightly different routes.

FUNDAMETALS

There is no question in my mind that inflation in the things that people need most, such as energy and food, has already taken off. One just has to look at the charts for Oil, Uranium, Meat, Lumber, Wheat, Sugar, Soybeans, and Cotton since the start of the year.

However, after such big gains, I’m also seeing the risk of short-term corrections across the board. What could be the catalyst for a sharp rise in deflation concerns? A violent but brief drop in stocks? A sharp but also short-term move higher in the dollar? Or both? Should this occur, it is likely to weigh on Gold and Silver also.

That said, we got confirmation this week that the U.S. and global authorities certainly plan to embark on massive fiscal stimulus funded by central bank monetary stimulus. First…

'Spend as much as you can,' IMF head urges governments worldwide

Then…

In order to fund all of this spending, the governments of the world will have to issue enormous amounts of debt. The risk is a sharp rise in bond yields. Given the record level of debt worldwide already, governments cannot afford even a 1% increase in yields. Enter the central banks. They will have to cap bond yields by buying or monetizing all of the new and maturing existing debt by printing money out of thin air. This is called “Yield Curve Control.” Something the Bank of Japan has been doing for years. Now the ECB is doing the same thing:

One could argue that the Fed is too, but it won’t be long before it becomes official. If governments are spending like drunken sailors and central banks are printing like never before to buy the resulting debt and cap bond yields, what bears the brunt of such actions?

The dollar and fiat currencies in general are the casualties. Coupled with the risk of widespread supply shocks, inflation—which has already started—is a forgone conclusion. More money printed out of thin air chasing fewer goods and services. With bond yields capped, what happens to real yields? They fall precipitously.

All of which bodes extremely well for Gold, Silver, and the miners this year once we finally end this pullback in the next few weeks or months at most. How do we know? Just look at what happened when the authorities unleashed fiscal and monetary stimulus beginning in March last year:

As I said back in December 2017, when we get fiscal and monetary stimulus on steroids, everything will go up…except the dollar. I should have included fiat currencies in general.

I’ll finish with this…