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Excerpted from the October 28 edition of Notes From the Rabbit Hole (NFTRH 210)
We are wrapping up October with markets far and wide in the midst of corrections of varying degrees.
The US stock market is following some old clichés in that it
apparently hates the uncertainty of the upcoming presidential election
and well, it is the spooky month of October after all. The market has done everything it was supposed to do this October and the correction is not yet indicated to be over.
Gold improved for the second week in a row and silver finally ticked
in the right direction. They have a long way to go yet, but you’ve
gotta start somewhere.
I find it best to tune out all the ‘insider’ experts and
rationalizers in the gold “community”. The ones who fail to highlight
obvious risk situations and then spew angry things against the
manipulative cabals when the relic corrects. Well no shit Sherlock, they
are manipulating gold. Right about the time the geniuses started touting the Golden Cross (one of the most useless things in TA) in gold, it was time to expect a correction.
The CoTs came to a very bearish structure as the metals got very over
bought, with gold at notable resistance at 1800. That’s all you need
to know and it is something that the most ardent gold bugs never seem to
get. It must be evil forces holding the great and good gold down.
Yes, and the evil force with the really big brain started jiggering with
the yield curve again. So what? We’re going to get where we are
going.
Meanwhile, the correction may have more work to do. We’ll see.
Photo by Toby Ord
The run up and aftermath to the FOMC’s QE announcement last month
brought a surge of bullish optimism to market players – especially those
in the over bought precious metals – that was unsustainable.
Back in May, as the stock market was heading into its final decline
prior to this year’s seemingly improbable second half rally, I wrote an
article called Dumb Money Sold in May and Went Away.
Later, this view was backed up with positions in global emerging bonds
and markets, global bonds, developed global markets, frontier markets,
technology, energy, rare earths, lithium, silver and gold.
Using the spread between 30 year and 2 year US Treasury yields, we
can gauge when policy makers are in control of market participants’
perceptions and when they are losing control to the free market’s will.
Operation Twist was announced in September of 2011 in the aftermath
of the first phase of the Euro crisis as the yield curve had exploded
higher, taking the monetary stress barometer, gold, with it. Over
bought on unbridled momentum, gold entered an extended correction in
line with the yield curve, which complied with policy makers’ goal of
calming down the system. As shown many times in the past, gold and the
30-2 yield curve generally travel together.
