Today we’re going to step back from the markets and take a look at the monthly charts rather than the short-term gyrations that are occurring in the markets.
They’ve all been largely trading sideways with a lack of interest by most investors as we come very close now to the elections, which are keeping a lot of investors and traders basically just trying to scalp the markets or stay out of the markets altogether.
But there have been, in the last week, some significant changes in the markets. And you really can only see them by way of the monthly charts. So today we’re going to take a look at those monthly charts.
Gold: Here is the monthly chart for gold. As you can see, last week gold did hit resistance at the upper level here and has now turned lower.
This is very significant. It is what I’ve been expecting all along.
Most importantly, it is pretty amazing that — given QE III to infinity and unlimited money-printing by the European Central Bank (ECB) and the Federal Reserve — gold was unable to get above this channel resistance here and is now turning lower.
I’ve said all along that this was a bearish signal that gold could not take out the earlier high this year and last year’s November high. And as you can see, gold was unable to do that despite unlimited money-printing.
Why? Because the de-leveraging that’s occurring around the world right now is overpowering even unlimited money-printing.
So we’re not there yet for the breakout in gold. The next leg up in gold will not occur until the money-printing that’s occurring leaks out into the economy.
Right now it’s basically sitting in banks and investment banks and going back to the Federal Reserve in the way of excess deposits, excess reserves put back on the Federal Reserve’s balance sheet, and it’s doing nothing for the economy.
So you’re not seeing the wave of inflation that everyone expects. It will come, but we’re not there yet. It probably won’t come until the sovereign-debt crisis fully impacts the United States and until the Federal Reserve forces banks to start lending again. And they do have several tools to do that.
They have not employed them yet so beware anybody who tells you that the Fed is out of ammo; that’s not the case. I’ve written about this extensively before.
We’re just not at that point yet where all this money-printing is causing an increase in the velocity and turnover of money and credit and causing inflation.
Silver: Let’s take a look at the monthly chart of silver. You’ll see pretty much the same thing here.
Yes indeed we did get a rally, but silver was unable to even test resistance let alone take out its previous high earlier this year and, of course, the reaction high back in 2011. This is pathetic action in silver. And silver is indeed now starting to break down.
I still believe that silver is going to plummet through $26 and head down to $22-$21. I know I have been wrong on my timing there but I am not going to be buying silver for the next run-up — the next bull phase in silver — until we see a cyclical test of support around the $20-$22 level.
That will likely happen over the next few months, so please be aware of that.
U.S. Dollar Index: I find this awfully interesting as well. The dollar is largely going sideways but with a slightly upward bias.
Given QE III, you would think that the dollar would be plummeting to record lows. It’s not. It’s the flipside of the gold argument.
The dollar is holding its own because there’s so much de-leveraging going on in Europe and movement out of the euro and other currencies around the world into cash, which by default means the dollar. So that’s causing the dollar to have a sideways to slightly higher trading band to it.
I do expect we’re going to see a torrid rally in the dollar coming very soon where we’re going to see it project higher — up to around the 92 level basis on the Dollar Index.
Dow Industrials: The Dow Industrials on a monthly basis give you a very good indication of what’s happening here.
The Dow Industrials is firm. There’s no question about that. That is a sign of its underlying long-term strength.
But here, too, QE III has done nothing to cause the Dow to explode to new highs.
We’re still under important resistance here and the Dow is starting to look like it’s going to penetrate support at the 13,200 level. Once that happens, once we solidly penetrate support at 13,200, we can get a significant pullback in the U.S. stock markets. And I still expect that to happen.
Longer-term, I expect the Dow and the S&P 500 to inflate higher along with gold and commodities. But we’re not there yet. We’re not going to get there until all the money-printing that’s being done by the Fed starts to work its way out into the economy, and that’s not happening right now. Please keep that in mind.
Have a good week. I’ll talk to you again soon.