Gold Market Consolidates Near Important Levels as Government Shuts Down / Commodities / Gold and Silver 2018

The gold market has beenmired in a four-and-a-half year basing pattern. The rally that began late lastyear has taken prices up toward a major resistance zone. It’s make or breaktime!

Also, on the cusp of apotentially big move is the bond market.

Bonds haven’t been makingheadlines like the stock market, but where the bond market heads next could becrucial for stocks as well as metals (not to mention housing and lending).

The 30-year Treasury bondis forming a potential head and shoulders top. A sustained break below themajor support line would confirm a new bear market in bonds. Lower bond priceswould mean rising long-term interest rates – a potential precursor to risinginflation rates.

The government shutdowndoesn’t do anything to inspire confidence in the creditworthiness of the U.S.Treasury.

Although no immediatethreat of default exists, brinksmanship could escalate in future showdowns.

The government shutdown of 2011caused the U.S. to suffer its first ever credit rating downgrade.

Senate Democrats pulledthis latest political stunt over DACA – a controversial amnesty program forchildren of illegal immigrants. DACA affects very few Americans directly. Itbarely registers as a line item in the $4.1 trillion federal budget. Yet itcaused the government to lock up and threatens to lead to a constitutionalcrisis down the road.

The investingimplications of gridlock, dysfunction, and chaos in Washington aren’timmediately clear. Past shutdowns have seen volatility pick up, but neitherequity nor precious metals markets have shown any consistent tendency to tradein a particular direction during or following shutdowns.

According to Bank ofAmerica Merrill Lynch analysts, when gold prices and bond yields are bothrising in tandem, that spells danger for the stock market. The Black Mondaycrash of 1987, for example, was preceded by rising gold prices and bond yieldsin the months leading up to that fateful October.

The U.S. stock market andeconomy have been fueled by easy money for the past several years and are nowextremely leveraged. Margin debt balances are at record levels. And despiterecent strength in employment and GDP numbers, the U.S. government is headedfor trillion-dollar deficits. A rise in borrowing costs threatens to unwindleverage in the equity markets and hit Uncle Sam with huge increases in debtservicing costs.

Rising bond yields(falling bond prices), rising stock markets, and rising precious metals rarelyco-exist together for long. One or more of these trends can be expected to soonbreak the other way. If gold rallies above resistance and bond prices fallthrough support in the days ahead, then stock market bulls will have cause forconcern.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2018 Stefan Gleason - All Rights Reserved

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