The Stock Market And Precious Metals On Hold

At week’s end we find the Dow Jones with a bearish, picture-perfect head and shoulders technical formation. The left shoulder goes back to last April, the head in early July and the right shoulder at the close of the week. So, is the market a sell as September 2019 comes to a close? It could be, but as I read the landscape the Federal Reserve is holding up this market. The Dow Jones won’t go down until the FOMC says it does.

But that doesn’t mean the Federal Reserve intends to shower the bulls with capital gains; look at how this crazy market has traded in the past year.  

A year ago the Dow Jones made four (4) new BEV Zeros (new all-time highs), after which it corrected 18%. It then recovered from this price correction where it made four (4) new BEV Zeros in early July last summer before correcting seven percent in August. The Dow Jones now stands once again at the threshold of market history, just short of making a new all-time high. But with only eight (8) new all-time highs made in the past year, are the “policy makers” inclined to give more to the market’s bulls as we head into October?

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 618\Chart #1   DJ BEV 2013_20.gif

Call me a big chicken, but I don’t care to speculate on what the Dow Jones (my proxy for the broad stock market) is going to do as 2019 approaches its terminal end point. Today’s big bulls are members of the global central banking cartel, who by definition can never run out of money, and aren’t primarily motivated by profits in their dealings with the financial markets. So, what are they after? What they seek is called “market stability.” That isn’t the description of what we seek from the market; as we need profits to just stay in place in our inflationary economy, market losses can result in bankruptcy for us.

Take a look at how things used to be, a time when “monetary policy” didn’t define how markets traded, as with US T-bond yields (Red Plot) and the price of gold (Blue Plot) in the chart below.I placed some light vertical dashed lines on turns in the gold market, look how T-bond yields reacted to these changes in the price of gold from 1971 to August 1987.

This relationship between the price of gold and bond yields make perfect sense, as rising gold prices (rising CPI inflation) promised T- bonds would become big losers on a total return basis. So bond buyers demand higher yields (lower bond prices) as an inflation premium .Lower gold prices resulted in the exact opposite reaction; lower yields and higher prices in the bond market.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 618\Chart #A   Gold & T BD 10Wk MA 71-03.gif

Then in August 1987 Alan Greenspan – the Maestro – became chairman at the Federal Reserve and this connection between bond yields and the price of gold was severed. Gold in February 2001 began a bull market that continues to this day, which unlike the 1969 to 1980 gold bull market, has had zero impact on bond yields as “monetary policy” has compromised any and all connections between trends in the gold and debt markets.

Former Federal Reserve Governor Kevin Warsh put it this way in January 2012:

"Now that I am out of government, I can tell you what I really believe. ---

“Central banks are now so heavily influencing asset prices that investors are unable to ascertain market values.This influence is especially evident, with the Fed's purchase of government bonds, which has made it impossible for investors to use bond prices to learn anything about markets.”  

- Kevin M. Warsh: Former Federal Reserve Governor. Comments made to the Stanford University Institute for Economic Policy Research, 25 Jan 2012.

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