The most important takeaway from the recent action is that this comprises early confirmation of the chain reaction that constitutes our long-term thesis for an eventual precious metals bull market:
- A top in the 38-year bond bull market →
- Causing higher interest rates throughout the world →
- Hurting governments’ and corporations’ abilities to sustain record debt payments →
- Resulting in simultaneous declines in both bond and stock markets for the first time in over 40 years →
- Leaving precious metals and select tangible commodities as the safety assets of last resort.
Indeed, we have been covering the developing decline in the bond market. Then how this would impact stock markets for the last two years. However, the mainstream media is just picking up on the theme now:
That said, the question becomes: is the generational decline in bonds and stocks – which will drive a flood of liquidity into precious metals (gold and silver) – about to start immediately?
Our best assessment is that we are seeing “warning tremors” of the larger thesis now beginning to manifest in world markets. Yet, the most significant part of this chain reaction is still some time off into the future.
Stock Market Tremors
Let us examine some data:
First, although the US stock market is down some 8% over the last two weeks and 6% in the last two days alone, the structure of the market remains intact.
Note below how the S&P 500 index has found support again at the lower range of its developing parabolic channel (blue), just above 2700. Thus far, this correction is similar to the February correction, which found support along the same channel. It would take a failure at 2700 on a closing basis to show us this channel is being invalidated. Nevertheless, even so, stronger support will exist at the lower original (magenta) channel which now comes at 2330.
A correction down to the 2330 – 2700 range would cause a major scare in world markets and would shake out much of the excessive sentiment that now believes the stock market is a “guaranteed way to make money each year”, but it would still not alter the structure of the multi-year advance. The rule is, that advances must be considered valid until proven otherwise:
Ironically, although the sell-off in stocks this week was caused by the sell-off in bonds, we are now seeing that the recent decline in stocks is causing a reverse flow of money back into bonds over the past three days.
Asset Class Comparison
Examining broad asset classes during periods of intense turbulence is of utmost importance. It gives us a preview of what we should expect when the larger decline finally happens. We note the following:
- Gold served its purpose and received a safe-haven bid.
- The US dollar did not receive safe-haven flows and indeed sold off with stocks, in important contrast to what occurred during the Crash of 2008 in which the dollar was the single best-performing asset in the world.
- Significantly, silver performed as a safety asset. Although not on par with gold, silver did not get dragged down with industrial commodities as it did during the Crash of 2008
In sum, this is an extremely positive price action to witness for precious metals investors as a preview of what to expect over the coming years, even if the “real move” is still not quite upon us.
Takeaway on Recent Market Volatility
The big picture macro thesis is showing early signals of coming together. As both bonds and stocks experience simultaneous corrections as foreshadows of larger multi-year declines to come.
Both gold and silver will be facing significant resistance over the coming weeks as they move higher. Still, the movements of major world assets in recent weeks are encouraging such that when the full decline in stocks and bonds begins, precious metals stand to be one of the premier asset classes of last resort.
BULLION EXCHANGES MARKET ANALYST
Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency.
Christopher Aaron specializes in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy has helped his clients to identify both long-term market cycles and short-term opportunities for profit.
This article is a third-party analysis and does not necessarily match the views of Bullion Exchanges. Do not consider Bullion Exchanges as financial advice in any way.