Following the Past Monday’s Gold and Silver Price Smash, What Lies Ahead?

Six days ago, on my blog, I posted an article titled, “The Short-Term Outlook for Gold and Silver”, and posted the following prediction, “In the short term, I would not be surprised to see gold pull back to $1,480 an ounce and silver below $16.80 as bankers have a vested interest in pushing silver back below the $16.80 range. There are a lot of politics at play in the gold/silver price war between East and West, as the crux of the US- China trade war runs much deeper than that which meets the eye, and the ongoing currency war between these nations is the force that is truly driving the trade war.” At the time I posted this article on my blog, I noted that gold was trading at $1,506 an ounce and silver at $17.10 an ounce. In fact, after I posted this article, gold rose to $1,535 and silver to $17.50 later that day. However, this past Mondy, the low intraday gold price in New York hit $1,479.30 and the low intraday silver price reached $16.41 an ounce, fulfilling both of my predicions, and my gold prediction nearly exactly. With my short-term price targets for gold and silver reached, What comes next?

I have been observing, analyzing and writing about these patterns in gold and silver prices in which gold and silver prices precipitously drop, either starting with the London PM price fix, or more frequently after New York gold futures trading opens, for well over a decade now. Consequently, I literally have observed dozens of gold and silver intraday price smashes in which the spread between high prices in Asia and low prices in New York exceeded 2% to 3%. In fact, during the 2008 global financial crisis, gold prices consistently fell in rapid waterfall declines of 2%, 3%, and 4% on a regular basis from the highs established earlier the same day in Asian markets. Downward price volatility in silver was even worse back then, with silver prices sometimes slammed as much as 11% in just a few hours after market open in New York. And back then, when I demanded answers from the Commodities Futures Trading Commission regarding these obvious non free-market price precious metal behaviors, I was only provided with responses that Chinese bankers were regularly manipulating prices of gold and silver higher in Asian markets but that zero evidence of any wrongdoing or interference by Western bankers in manipulating gold and silver prices lower in futures markets existed. This answer, we know by now, has been heavily discredited by numerous court documents, court testimony, and banker admissions to the contrary.

Still, the question is will the patterns of 2008 repeat themselves now that gold and silver are exhibiting strong bullish tendencies again? Yesterday was the first large raid on gold and silver prices in a while, with gold cratering within a matter of hours, on large futures volume, by more than $55 an ounce from highs in Asia, and silver likewise cratering by more than 6% from its highs in Asia yesterday, an event that was sure to elicit some cries of, “Here we go again.” Though there was a bounce in both gold and silver prices off of these lows, the real test will be to observe what happens in gold and silver prices after the New York market opens again today. Not only do I need to observe if there are large volumes of gold and silver futures contracts dumped on the market again today and for the rest of the week, but I need to observe the subsequent price behavior in Asia after such smashes (if further ones develop) and the levels at which gold and silver prices close at the end of this week. I actually have observed some promising developments beneath the surface, and though it’s too early to discuss them, I must admit that there is a reason to not yet concede, despite yesterday’s gold and silver price smash, “Here we go again”.

Since the massive sell-off in the US stock market yesterday makes some of the information in this article slightly outdated, I was going to just put it in the rubbish bin even though I wrote it well before US market open in NY yesterday but delayed publishing it until today. The reason I was, at first, not going to publish it was for the obvious reasons that it looks like I wrote it after the fact, even though this was not the case. My timing in deciding to hold off publication, as I often write two or three articles ahead of time and schedule them for later publication on my blog, was simply bad timing as the event predicted in this article manifested yesterday in US stock markets.

However, given that just this past week, two of my three articles predicted events before they happened, I decided to publish this article “after the fact” for the simple reason that there is still very relevant and useful information for understanding what lies ahead. Number one, I predicted a sell-off in gold to $1,480 and of silver to below $16.80 an ounce on 9 August Asia time (8 August US time), both of which manifested on 13 August to nearly my exact target prices. Secondly, after this happened, I published a follow-up article to my first prediction coming true, titled “What’s Next?”, which I published at 12:30PM Hong Kong time yesterday (11:30PM New York time, 13 August), which can be confirmed by the time stamp on my blog of this posted article. In that article, I wrote that it was too early to concede that the big sell-offs in gold and silver that happened in New York on Monday would lead to a larger immediate sell-off in gold and silver. In that article, I hinted that gold and silver could rebound yesterday in the New York gold market that was 9-hours away from opening because, “I actually have observed some promising developments beneath the surface, and though it’s too early to discuss them, I must admit that there is a reason to not yet concede, despite yesterday’s gold and silver price smash, ‘Here we go again’.” One of those reasons, but not the only one, was an impending sell-off in the US stock market that I believes was going to happen, as gold prices and US stock market behavior have been moving in opposite directions as of late. Subsequently, one actually happened yesterday. I provided another reason that gold and silver may rebound from its Monday selloff, through the short 3-5 videos I deliver to my patrons every week, which was another inverse relationship of gold and silver prices to another asset price, that was dropping in price in Asia before market open in New York. Because that asset price was dropping, I told my patrons that gold and silver prices could reverse as there was an inverse relationship that I uncovered between these two asset prices that has been manifesting for several months now. As this is a unique inverse price relationship that I have not heard a single other analyst mention, I will leave that asset price relationship as a hidden gem only for my patrons for now.

Finally, here is the rest of the article that I wrote yesterday, though slightly outdated already, but still in possession of important charts and information to understand the future outlook for US stock markets. We are now at an inflection point for the US stock market. As you can see, per the graph I’ve drawn two possible outcomes, an Option A of a breakout higher from the flag now forming on the chart, or an Option B of a plunge lower from the flag. (to view all charts referenced in this article, as I could not replicate them here, please visit the original articles at https://www.maalamalama.com/wordpress)

I believe that Option B is the more likely outcome and here’s why. When we really want to know what lies ahead for the US stock markets, as my past clients know, I have very frequently discussed the optics of the corporate junk bond market and the implications for the price behavior of US corporate junk bonds on the US stock market. I have often used the behavior of the US corporate junk bond market as a lead indicator to predict what is going to happen in the US stock market. And right now, the situation is precarious in the corporate junk bond market.

Above, I have posted the 5-year ICE BofAML US High Yield Master II Effective Yield chart and you can see that it has formed a very conspicuous bullish cup and handle formation. Of course, given the inverse relationship between bonds and prices, higher yields means that prices are falling. Higher yields also mean that risk is increasing and that the market is no longer willing to discount the greater risk associated with junk bonds.

I have circled two conspicuous inflection points in the above cup and handle formation. The first, numbered 1, is when the cup formation started turning higher. This happened on precisely 1 October 2018. The result? The US S&P500 sold down by 20% from that point onward. The second inflection point I circled, which is on the verge of manifesting, but has not yet manifested is numbered 2. This is the point at which the cup and handle formation breaks out of the handle consolidation phase. This has not yet happened, but is on the verge of happening and I believe that it is an inevitable event at some point over the next few months. And when this happens, I believe that we will experience an even larger sell off in US stock markets than manifested after inflection point number 1.