Image Source: Pixabay

The stock market rally is amazing right now. Nvidia's stock soared again on Friday, and the sector that went on the most to help push the S&P 500 higher was the semiconductor sector. Google's stock actually languished, so not all of those so-called “Magnificent Seven” stocks are doing well. However, those who were talking about Nvidia are now talking about Bitcoin, as it has recently been trading around $62,000.

Federal Reserve Jerome Powell is scheduled to do one of his bi-annual economic talks to Congress this coming week, and people are looking for him to talk about future interest rate cuts. It’s amazing that with the market rallying like this, CPI inflation still above 3%, and no signs of an economic recession, that the Federal Reserve is willing to discuss interest rate cuts.

If we’re not going to have a recession this year to justify those cuts, then he is setting the stage for a bubble bust, like Alan Greenspan created in the year 2000 after he lowered interest rates three times in 1998. The stock market does not need rate cuts, so I guess it’s all about the politics.

And financial media doesn’t seem to care. Many seem to be simply celebrating interest rate cuts, while others have been celebrating crypto and the idea of AI. People are apparently going to keep buying and hyping until it all falls apart.

And few are talking about gold and silver, even though gold had a big day on Friday to close right below $2100, and it now looks poised to breakout.

Notice on the bottom of this chart that the 200-day Bollinger Band width indicator has flat-lined for the past few months around 10. That means long-term price volatility for gold has contracted (you know it because it has been trading in a narrow <5% range since December), and will expand for a big move.

That’s likely to be to the upside with a breakout, with the looks of the current price chart and the fact that future interest rate cuts, instead of hikes, are on the horizon. It doesn’t matter if they come next month or next year, because all that matters is that cuts are next and not hikes.

So, the one way to protect yourself from inflationary policies is precious metals. To illustrate how big this Bollinger Band contraction is, you have to look at a long-term chart to put it in perspective.

The Bollinger Band 200-day width indicator has only gotten to 10 six times since 1998.

Of course, when gold goes up, silver tends to go up as well, and so do mining stocks, which have been languishing over the past few months. Gold rising above the $2100 mark should bring them back to life and get them to play catch-up.

It will certainly be an interesting week, what with gold, silver, and Jerome Powell's talk to Congress. If gold is going up now, just on the notion that interest rate cuts are coming, what will it do when they do come?

When I think out, though, past this week and into next year, it makes sense to me for Bitcoin enthusiasts to take profits on their rally and move into silver before its price performance to the upside starts to outperform Bitcoin, because the day will come when the crypto market will bust again, and when it does, money will move out of speculative instruments and into safety plays.

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