Why the Sky Is Not Falling in Precious Metals / Commodities / Gold and Silver 2021

Stocks are predictably staging a continued recovery fromthe mostly sideways correction – a shallow one not strong enough to break thebulls‘ back. Credit markets are largely behaving – with the exception oflong-term Treasuries, which I see as highly likely to draw the Fed‘s attention – just as I discussed in detail yesterday.

The S&P 500 keeps doing fine, and so does my openposition there – in the black again. On one hand, volatilityremains low regardless of intraday attempts to rise, on the other hand, theput/call ratio has risen quite high yesterday – it‘s as if the traders areexpecting a shoe to drop, similarly to the end of Jan. Will it, is there any onthe horizon?

Treasuries at the long-end are falling like a stone, andthose on the short end (3-months) are seeing higher prices in 2021. The bondmarket is clearly under pressure, and exerting influence primarily upon preciousmetals (and commodities such as oil, which are experiencing a down day today,after quite a string of foreseeable gains).

The bearish sentiment in gold and miners is runningrampant, and it‘s been only yesterday when I answered a question on ominous head and shoulders patterns in themaking, at my own site.

This clearly illustrates the razor edge we‘re at in precious metals:

(…) This is more often than not the case with H&Spatterns – they are not the most reliable ones, highly judgemental at times,and their targets are more often than not far away, which makes them a notfully reliable trading proposition when a long enough time (trade) series istaken. I rather look at what is driving individual moves – which asset classesinfluence it the most at a given time? Where to look for so as to get mostprecise information? With gold and gold miners (they still trade quite tightlytogether), it's the Treasury yields on the long end.

As I wrote in today's (Feb 18) precious metals report,despite the new 2021 lows in TLT, gold isn't amplifying the pressure – it'strading well above the $1,770 level, and enjoys a stronger session today thansilver. Look at the gold – TLT evolving relationship, as that's the keydeterminant right now. The post-Nov dynamic speaks in gold's favor – under the surface.Don't underestimate the Fed either.

Plenty to talk and cover in the precious metals really –just as usual at such crossroads. Let‘s briefly recap all the ducks lining upin stocks first.

Let‘s get right into the charts (all courtesy of www.stockcharts.com).

S&P 500 and Volatility

Repeated lower knots mark a refusal to decline as thedaily dips keep being bought. Given the constructive developments in high yieldcorporate bonds and its key ratio (HYG and HYG:SHY), I fully expect the uptrendto keep reasserting itself once again. The talk about a top, imminentcorrection or stretched valuations, is still premature.

The best known volatility measure is stillrefusing to rise on a lasting basis, indicating that the environment remainsfavorable to higher stock prices.

Dollar and Treasuries

The world reserve currency is on the doorstep of anotherpowerful decline, and not initiating a bull market run.The caption says it all – this is the time for antidollar plays to thrive inour era of ample credit, unprecedented money creation that‘s triggering aRoaring Twenties style of speculative environment, not a Kondratieff winterwith a deflationary shock as you might hear some argue.

Look around, check food, energy, or housing prices, andyou‘ll see how connected to reality are the calls of those writing thatinflation isn‘t a problem (monetary inflation lifting many asset classes).Check that against Fed President Daly stating that the inflationary pressuresnow point downwards… and make your own conclusions about the new money wavehitting the real economy.

Gold, Silver and Miners

Just as gold is challenging (resting on) the late Novlows, so is the miners to gold ratio. That‘s a key one – I mentioned at thevery end of Jan that I would like to see it start to lead higher. Seeing thelatest two-day losing streak, it‘s not happening, and the late Jan breakdownwhich might have turned out to be false, may not materialize in the short run.Let‘s get a proper perspective by displaying this chart in weekly format.

Is this the dreadful breakdown threating doom and gloomin the precious metals? Zooming out definitely provides a very different take –a more objective one than letting (fear) emotions run high and tickitis to takeover.

We‘re still consolidating, and not making lower lows –regardless of this week‘s increased gold sensitivity to rising yields as seenin the plunging TLT values. Inflation is making its way through the system assurely as Titanic‘s watertight compartments were filled with water. I‘vediscussed on Wednesday at length inflation, past Fed action and asset appreciation,and yesterday explained why the central bank will be tied into a war on two fronts as it gets toseek control over the yield curve at the long end too.

Another short-term worrying chart as silver miners arecaught in last days‘ selling whirlwind. Even the juniors lost their short-termedge over the seniors, making me think that a potential washout event before amore universal sectoral rebound, might be at hand.

Pretty worrying for those who are all in gold – unlessthey took me up on last Friday‘s repeated idea that silver is going tooutperform gold in the next precious metals upleg, which I formulated that dayinto a spread (arbitrage) trade long silver, short gold. Check outthe following chart how that would have worked out for you.

The dynamics favoring silver are unquestionable –starting from varied and growing industrial applications, strengtheningmanufacturing and economy recovery, poor outlook in silver above groundstockpile and recycling, to the white metal being also a monetary metal. Silveris bound to score better gains than gold, marred by the Bitcoin allure, would.

Summary

The bearish push in stocks didn‘t indeed take the sellersfar – just as I wrote yesterday, there was no reason to hold on to your hat.The stock bull run is firmly entrenched, and there are no signals thus farpointing to an onset of a deeper correction right away as all we‘re goingthrough, is a shallow correction (in time especially).

Bearish dollar, $1.9T or similar stimulus not priced in,and yet gold isn‘t taking a dive. Amid very positive fundamentals, it‘s thetechnicals that are short-term challenging for gold – we‘re in trulyunchartered territory given the economic policies pursued. I stand by my callto watch the TLT chart very closely – it looks like an orderly TLT decline iswhat gold needs, not a selling stampede. Despite the current disclocation withgold being the weakest of the weak (I am looking at commodities for cues), Istill stand by the call that a new PMs upleg is only a question of time – ashortening one, at that.

Thank you for having read today‘s free analysis, which isavailable in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, whichfeatures real-time trade calls and intraday updates for both Stock TradingSignals and Gold Trading Signals.

Thank you,

MonicaKingsley

Stock Trading Signals

Gold Trading Signals

www.monicakingsley.co
mk@monicakingsley.co

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All essays, research andinformation represent analyses and opinions of Monica Kingsley that are basedon available and latest data. Despite careful research and best efforts, it mayprove wrong and be subject to change with or without notice. Monica Kingsleydoes not guarantee the accuracy or thoroughness of the data or informationreported. Her content serves educational purposes and should not be relied uponas advice or construed as providing recommendations of any kind. Futures,stocks and options are financial instruments not suitable for every investor.Please be advised that you invest at your own risk. Monica Kingsley is not aRegistered Securities Advisor. By reading her writings, you agree that she willnot be held responsible or liable for any decisions you make. Investing,trading and speculating in financial markets may involve high risk of loss.Monica Kingsley may have a short or long position in any securities, includingthose mentioned in her writings, and may make additional purchases and/or salesof those securities without notice.

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