02 April 2013

Gold Daily and Silver Weekly Charts - Non-Farm Payrolls Week Hit on the Metals

I was expecting a hit on the precious metals this week, and today would certainly qualify.

Non-Farm Payrolls on Friday.

Stocks and the precious metals are running inversely here which is a change from the past.

I think that is because both stocks and the precious metals were rising in a reflationary environment.

We are now past that reflation and stocks have entered bubble territory. That bubble is soaking up quite a bit of excess liquidity and funds are being created for financial paper by selling positions in commodities. And the metals are prime targets.

The lack of volume in the stock rally is a huge warning sign of trouble ahead.

IF the market expected a serious recession, would stocks be rallying so hard? No. But how does this square with the meme that commodities are falling due to decreasing demand?

I believe this is a monetary phenomenon in an unreformed market. IF that is correct we should see a rather violent reversion to the mean, or norm, sometime this year, probably in two steps. Step one is probably going to be a 'market break' that will scare the stocks bulls for a time, until the Fed calms their fears with more liquidity. The second break could be rather impressive.

I am not necessarily expecting a market 'crash' of 20+% although that is possible.  I think there will be a dislocation in the financial-political realm that will have far-reaching effects.

But no one can predict the future and that certainly includes me. 

At the same time, I am seeing a rally in paper financials and corporate profits, and at the same time increasing despair amongst consumers and the public, with very little signs of sustainable recovery. 

This divergence is being ignored by policy makers and influencers, who are taking a 'Shut Up Savers' stance towards their base of support.

So let's see what happens.