Thursday last week was a momentous day for the Precious Metals sector with gold, GDX, and other índices, and giant gold ETF, GLD all breaking out on impressive volume, and this development was all the more extraordinary because it happened when the broad stock market was crashing. This is viewed as a strong sign that instead of being dragged lower still by a crashing stock market, the PM sector will soar. Silver hasn’t broken out yet, but it should soon follow suit.
In recent weeks we have been wary that, despite highly favorable COTs and Hedgers charts and rotten sentiment indicators etc, a general asset liquidation might drag the PM sector even further down, but Thursday’s extraordinarily positive action by the sector serves to allay those fears. Of course, it’s not hard to see why the PM sector might do the opposite to what it did back in 2008 when the market crashed, and it nosedived too. There are two very big differences this time. One is that, before the 2008 crash, the PM sector was actually quite elevated. That is in marked contrast to now where it is beaten into the ground with sentiment in the basement – basically, it is so unloved and neglected that the only way is up. The other big difference between now and 2008 is that while a major asset liquidation cycle will result in a flight to cash that could drive the dollar significantly higher, beyond that the longer-term outlook for the dollar is grim, with much of the rest of the world, tired of US bullying in the form of sanctions, military threats, and now trade wars, and its unquestioning support of rogue states like Saudi Arabia and Israel, committed to freeing themselves from dollar hegemony – and plans in this direction are now well advanced, with countries like China and Russia having built up big gold reserves that can at some point be used to back their currencies, and workable substitutes for the SWIFT payments system at the trial run phase. Subjected to continuous provocation, China may at some point decide to go for the “nuclear option” and dump its huge Treasury hoard, sending the Treasury market reeling and interest rates skyrocketing, which will cause the US economy to buckle and implode – the US appears to be overlooking that China has this power.
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