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U.S. Market: Market Melt-up Brings Volatility to Metals

February 1st, 2017 · Chris Vermeulen · 16 Comments

Our recent analysis bases on a previous report of the potential for a further run in the US markets based on a number of technical and fundamental factors leads to the question of “what could happen with Gold and Silver”.  A broad US market rally may put some pressure on the metals markets initially, but, in our opinion, the increase in volatility and uncertainty will likely prompt more potential for upward price action in precious metals.

As with most things in the midst of uncertainty and transition, the US Presidential election has caused many traders to rethink positions and potential.  As foreign elections continue to play out, wild currency moves are starting to become more of a standard for volatility.  Combine this with a new US President and a repositioning of US global and local objectives and we believe we are setting up for one of the most expansive moves in recent years for the US general markets and the metals markets.  This week, alone, we have seen a flurry of action in DC and the US markets broke upward on news of the Dakota Pipeline and other Executive actions.

As we wrote week or so ago, we believe the US markets will push higher in 2017 a business investment, US strategy and foreign capital runs back into the US equity market chasing opportunity and gains.  Additionally, we believe the strength of the US market, paired with continued strength of the US Dollar, will drive a further increase in global volatility and wild swings in foreign markets.  This volatility, uncertainty and equity repositioning will likely drive Gold and Silver to continued highs throughout 2017 – possibly much longer if the new trend generates renewed follow-through.

Our belief that the US markets will continue to melt-up while certain foreign markets deteriorate relates to our belief that currency variances will become more volatile and excessive over the next few months.  This, in combination with a renewed interest in developing US economic solutions, will likely drive the US markets higher while the metals markets will continue to become a safe-haven for US and foreign investors to protect against deflation and foreign market corrections.

S&P Futures are setting up a clear bullish pennant/flag formation that will likely prompt an explosive price move within 2~3 weeks.  This bullish flag formation is likely to drive the ES price higher by roughly 100+ pts.  Currently, strong resistance is just above 2275, so we’ll have to wait for this level to be breached before we see any potential for a bigger price move.

SP500 Weekly Chart


SP500 Daily Chart


GOLD is channeling in a very clear and narrow upward price channel and trading in the middle of a support zone.  The recent reversal, near the end of 2016, was interesting because GOLD trailed lower after the US election, but then reversed course just before the new year.  The interesting fact about this move is that this new upward swing in GOLD correlates with the beginning of the Bullish Flag in the S&P Futures as well as a decrease in volatility.  We believe as this Bullish Flag will prompt a jump in volatility and price action that will result in is a strong push higher in GOLD.


GOLD Weekly Chart


Gold Daily Chart



SILVER is setting up in a similar manner as GOLD.  Although the SILVER chart provides a clearer picture of the downward price channel that is about to be breached – and likely drive both SILVER and GOLD into a new bullish rally.  The support Zone in SILVER, between $16.60 ~ $17.40 is still very much in play.  SILVER will likely stay within this zone while the Bullish Flag plays out.  Yet, when the breakout begins, a move above $18.00 will be very quick and upside targets are $18.50~18.75 and $19.50~$20.00 (possibly much higher in the long run).


SILVER Weekly Chart


Silver Daily Chart


EUR/USD correlation to the US moves should be viewed as measure of strengthening US economy/USD as related to foreign market volatility and potential.  As the USD strengthens, this puts pressure on foreign governments and global transactions based in USD.  This also puts pressure on the METALS markets because billions of people around the globe consume precious metals as a “safe-haven” related to currency volatility.  We expect the EUR/USD levels to fall near “parity” (1.00) again and possibly dip below parity based on future foreign election results.  This volatility and uncertainty will translate to increased opportunity for GOLD and SILVER to run much higher over the next few months.


EURUSD Daily Chart



USDMXN Daily Chart


USDGBP Daily Chart



Right now is a fantastic opportunity to take advantage of these lower prices.  We may see rotation near to the lower support zone levels as price rotates over the next few weeks.  The key to any trade in the metals market is to understand the potential moves and watch for confluence and volatility in other markets.  We believe the next few weeks/months will be very telling.  If we are correct, we’ll see new highs in the US markets fairly quickly and we’ll see a new potential bullish breakout in GOLD and SILVER.

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16 responses so far ↓

  • 1 Lachlan // Feb 9, 2017 at 8:17 pm

    Ok that’s interesting. Chris remains a bull. Nadeem Walayat, an outspoken bull, well he wants to short the dow this year. Peter Schiff has little good to say for it either.

  • 2 Greg Atkinson // Mar 1, 2017 at 8:45 am

    I get the feeling that the US market is starting to cool down a little. If US interest rates inch up this month then that might also bring down stocks a touch. Either way it seems like a correction can’t be too far away.

  • 3 Molly // Mar 2, 2017 at 6:10 am

    I watch, I read, however lately I am feeling confused. Confusion tends to make me feel uncomfortable.

  • 4 Biker // Mar 5, 2017 at 5:15 pm

    I wonder if plans by superpowers, to increase militarism, might not mean a dramatic rise in resource stocks(?) In addition, wall-mongering may require the US to reduce its export of steel, at least until its borders are ‘secure’. Ironic perhaps that a(nother) Great Wall (the first of many) built to reduce the impact of unwanted migration is to be erected to repel Mexican invaders. Photos of existing barriers indicate that this outfrastructure may indeed absorb much US steel; as may Trump’s infrastructure projects.

    China’s decision to almost match the US commitment to an arms build-up may herald a new resources mini-boom… .

    Not by any means a desirable trend… but one which may have some impact here… .

  • 5 Biker // Mar 5, 2017 at 5:23 pm

    An opposing view here(?)

  • 6 Lachlan // Mar 7, 2017 at 5:45 am

    Rates and stocks Greg? More analysts seem to weighing in on the bear case, Mr Schiff etc.
    Biker, the new era of nationalism, the militarism etc cohere with otherwise different observations I’ve made in past years. They urge me to believe we will soon smash and rebuild a lot of things. Indomitable institutions might fall like a trade tower as people struggle to comprehend. Then we’ll erect new ones of course.

  • 7 Lachlan // Mar 8, 2017 at 5:05 am

    What I feel unsure about are the particulars. How will we fair in the great southern land?

  • 8 Biker // Mar 8, 2017 at 8:52 pm

    Lachlan: “…we will soon smash and rebuild a lot of things…”

    I’m with the camp which supports infrastructure as a way of rebuilding economies, Lachlan. I still marvel at some of the projects in south-west Australia, initiated during the Great Depression.

    It’s not the _ideal_ solution, of course. Ideally private enterprise takes on these mega-projects, but since the rise of the shareholder, major developments will probably only occur if there’s an almost _immediate_ pay-off(!)

    This is possibly the sole point on which I really agree with Trump. Infrastructure, replacing crumbling bridges, poor quality roads, inadequate pipelines, etc., is l-o-n-g overdue in many US states we’ve toured in recent years.

  • 9 Lachlan // Mar 11, 2017 at 5:30 am

    There’s a nice bearish week for you Greg. Oil down about $4.50…ouch! Interestingly WOR didn’t budge in any direction. Also Bill Gross this week,”Our financial system is a truckload of nitroglycerin on a bumpy road”.
    No worries though. The oil price could simply play out as a savage downside shakeout before moving higher.
    The Dow however has provided a coincident bearish sign. Most of the gains from last weeks rippa rally have gone and in order to prevent a break through a key support next week it will be necessary for some more upside.
    In any event the xjo looks calm for now. I’ll be neutral then concerning the resolution of these moves although I have a bullish bias. If the technicals break down next week (say dow falls through and stays below 20,800)then I will turn intermediate term bearish.

  • 10 Lachlan // Mar 11, 2017 at 6:08 am

    I’ll be pragmatic today Biker. In any event the public-private dichotomy is horribly complicated.
    I breathed a sigh of relief when I heard about the Trumpfrastructure. Not because I have first hand knowledge of it as you do. I accept that somebody will be calling the shots over the mob. Yet there remains a vast gulf between the wisdom of spending public money in various ways. Infrastructure spending to my mind is a sensible and primary concern no matter how it is brought about.

  • 11 Biker // Mar 11, 2017 at 10:06 pm

    Oils ain’t oils, Lachlan… . 🙂

    I’m getting 100 kms+ from a single charge of my eBike. Consensus is these things have improved tenfold technologically in the last two years. We’ve decided to get rid of one of our two cars, in fact. I’ll even sell my older (vintage) motorcycle… !~

    Retirees, who no longer need to live where they work, or meet rigid time schedules, are going to adopt this technology in droves. Empty nesters like us can carry a week’s shopping in our waterproof panniers and travel long distances in half the time.

    Meanwhile Labor has won resoundingly in the West. For us, the big surprise was Brendon Grylls’ Nationals _trouncing_ the Libs. The mining lobby’s attacks on Grylls appear to have backfired bigtime.

  • 12 Lachlan // Mar 12, 2017 at 6:36 am

    Ha ha, with that serious look on her face, had to laugh at Pauline’s sour milk analogy with regard to Colin Barnett.
    Otherwise, it can be a virtuous position in politics to have someone attacking you…assuming the mob views you as a decent person.

  • 13 Biker // Mar 21, 2017 at 2:23 pm

    Mike Nahan was pretty sour on Barnett, too, Lachlan… and has just today taken up the reins as opposition leader. Nahan has blamed Barnett for the Libs’ crushing defeat, but there were multiple reasons they were blown away.

    My contention that “…the mining lobby’s attacks on Grylls appear to have backfired bigtime…” was incorrect. Grylls was beaten, albeit by a few hundred votes. Mine dew, he had upset all the chalkies by raising their government housing rent a few weeks before. A pity, as he was the best pollie rural and regional Australia had ever seen… .

  • 14 Greg Atkinson // Mar 29, 2017 at 10:48 am

    I’m not bearish regarding oil over the longer term Lachlan because the world just can’t get enough of that stuff but I am turning bearish regarding the Australian stock market. Soon I will finally get my forecast out for this year and it’s not going to be a bullish call.

  • 15 Biker // Mar 30, 2017 at 9:48 pm

    We’ll be most interested to read your views, Greg. We’ve made money on international shares, but the ASX200 is still an unknown beast I / we can’t predict:–very-expensive—37478

  • 16 lachlan // Apr 6, 2017 at 5:46 am

    I’m no oil bear either Greg for the same reasons. In fact my oilers have been cause for more joy than other shares I own for some time. However there is some decent overhead resistance in oil a dollar higher from here. So some medium term weakness may eventuate if oil fails it’s test there and if the xjo takes a pullback as you describe in your next article then a correlation may be destined there with oil prices.

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