The Fed has spoken, nothing changed, and the markets were volatile – FOMC day as usual.
The rates stayed where they were as there was no progress made on the path to Fed’s 2% inflation goal. When will the Fed cut rates? They are not sure – it depends. The most fun thing about Powell’s speech yesterday was when he said that "it is unlikely the next policy move will be a hike."
Saying this makes it clear that it’s something that they are actually considering but putting a “no” on. Sure, they might not hike further, but it tells a lot about how likely a further rate cut is – it’s further than most think.
And this, on its own, without any extra details, is enough to push stocks lower. This simply means that companies will have to bear the burden of higher interest for longer. Some of them will have to terminate some contracts and limit some purchases, production, and output; the revenue might fall, and so will profits, and thus stock valuations and prices.
Markets are forward-looking, so knowing that this is likely will make people want to sell now instead of waiting for the prices to fall in the future – after all… Please raise your hand if you want to sell later at lower prices rather than now while they are still high. I’m pretty sure I would see no hands in the air if I were in a closer physical distance.
Here's what happened yesterday.
I put all (junior miners, gold, silver, and stocks) charts on one image to emphasize how aligned the price moves were. In short, the markets rallied in anticipation of a rate-cut and then instead of it, they got the above comments.
While it may not be apparent from the above charts alone, the back-and-forth move made the situation more bearish for the markets than it was before – it was not neutral.
The reason is that it’s now clearer that what prevented the markets from falling further – expectations of rate cuts in the near future – is gone. It seems that initially, it was only those who had bought during the day, and quickly sold whatever they bought (at least in case of stocks), but the remaining investors (so, the vast majority) is likely to react now and in the following days/weeks. The hope is gone (or adjusted) only in their case, too. They simply weren’t focused on trading the intraday moves.
All in all, stocks are likely to slide, just like they did in 1929 – the price patterns in both cases are remarkably aligned. Sure, the history doesn’t repeat itself to the letter – so it’s no wonder that this time we saw the corrective pullback several days earlier – but it does rhyme. And since the concentration of growth in the market in case of the biggest companies that we saw in the previous weeks was comparable only to what we saw in August 1929, it’s likely that a huge slide is about to take place.
Mining stocks are likely to slide in this kind of environment, and we saw example of how connected they are to the near-term stock price movement yesterday. As stocks reversed their course, so did miners. I wrote this multiple times before, but it’s worth repeating once again – if stocks slide, miners are likely to truly plunge in an unreasonable manner.
Yes, in an unreasonable manner.
Was anything reasonable in the enormous slide of 2008? No, but it happened, anyway.
We’re likely to see something like that once again.
The interesting sign that you can see on the above chart is that the moves in gold and silver were also connected with what we saw on the stock market, but the metals haven’t reacted as much as miners did. That’s probably because the USD Index also moved lower yesterday, but it still shows that junior miners are more connected to the stock market’s performance than metals are.
The USD Index is still likely to soar, and it’s likely to soar in a MAJOR way – the only thing that happened based on yesterday’s decline is that the post-rally consolidation got a bit longer.
Gold price is NOT rallying in a major way here – it moved back and forth after moving briefly below $2,300, but this volatility doesn’t change anything. The very bearish implications of the monthly reversal that I described yesterday remain up to date.
Oh, and do you remember when I wrote that bitcoin was topping here? I wrote about it multiple times, and the reasons that I mentioned were the invalidation of the move to new highs, the analogy to how the same thing in 2011 led to huge declines, the analysis of momentum, and how the buy-the-rumor-sell-the-fact phenomenon is likely to make bitcoin price FALL after its halving.
It's sliding.
The same with tech stocks. I wrote about the analogy to 2021 and 2022 on multiple occasions, and I emphasized the failure to hold above the 2021 high, as well as the analogy in shape of the first part of the slide.
I also commented on the AI craze and how it’s dying out – the craze, not the technology. The tech is solid, just like the Internet was in the 2000s. The problem is that it got overhyped in the near term and that we see the Dot-com 2.0 bubble bursting.
It’s all going down.
Not forever, and not all at the same pace, though.
The USD Index is likely to soar, as the U.S. dollar is still viewed as world’s safe-haven currency. The precious metals market is likely to react specifically, but in a rather predictable manner – as we saw quick slides in stocks before and PMs and miners’ reaction was similar.
During the early and middle parts of the slide in stocks, metals and miners slide together with stocks, but they bottom earlier, and while stocks continue to move lower, gold, silver, and mining stocks are already soaring. We’re far from this moment, but it’s likely to take place.
One of the clues as for when that will happen is to wait for the NASDAQ to reach its previous lows – that was triggered a bottom in stocks in 2000 (approximately). There will be many other confirmations that will help us navigate the treacherous waters, but for not it’s too early to tell which indications that will be. Gold stocks showing strength relative to gold is one thing, but there will likely be others as well.
As always, I will keep my subscribers informed. And while I can’t promise any specific rate of return, it seems to me that our streak of profitable trades (we’re on a record of completing 13 profitable – unleveraged – trades in a row; with the last one being the closed long position in gold) will grow further.
Stay tuned.
It seems that the major tide is here in the case of currencies (USD/YEN!), stocks (tech stocks, broad market), bitcoin, and precious metals. It also seems that junior mining stocks provide an excellent opportunity right now, and I invite you to subscribe and read all key details in my premium Gold Trading Alert (along with trading details). Subscribe today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief