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(www.investorideas.com
Newswire) The precious metals market soared today, most likely based
on the most recent move in the Trump-Powell fight.
On Sunday, January 11, the Department of Justice served grand jury
subpoenas to the Federal Reserve over Chair Jerome Powell’s congressional testimony regarding
headquarters renovation costs. Gold immediately surged 3% to record
highs above $4,600, the value of the USD Index declined, and the “Sell
America” trade returned with a vengeance.
Gold is up – and it moved to new all-time highs, stopping at its
rising resistance line based on the most recent tops.
And while gold rallied by almost 3% and miners by over 4%, silver gained over 8%.
The silver – other PMs spread is working in our favor as the
white precious metal continues to outperform. Right now, it seems just
like volatility, but the final confirmation of silver’s
disconnection will arrive when we finally get a meaningful decline
– and silver holds up better than other parts of the precious
metals sector. That’s when silver’s massive upside potential will be 200% confirmed.
Mining stocks are up, but they are about to reach a resistance level
that’s unlike any other.
Namely, the GDXJ is about to reach its all-time high. If someone
bought close to the 2011 top, they are only even right now – in
nominal terms. In real terms, they will need to wait much longer to
get even.
The question – of course – is if the rally based on the recent turn of events regarding the Fed
is here to stay. I doubt that the impact will be more than temporary.
Here’s why:
The DOJ investigation into Powell represents the most extreme
escalation possible short of actually firing him. Trump has now:
· Called Powell a “knucklehead,” “numbskull,” and “major
loser”
· Shown Republican lawmakers a draft letter firing him
· Fired Fed Governor Lisa Cook (case pending at Supreme
Court)
· Announced “THE TRUMP RULE” that anyone who disagrees
with him will never be Fed Chair
· Launched a DOJ criminal investigation
What’s left to escalate?
This is maximum pressure. Trump’s Art of the Deal playbook follows a predictable pattern: aim very high, create
maximum uncertainty, then settle for something more modest while
claiming victory.
It seems that right now (or it could happen in the following hours)
the market is already pricing in the worst possible outcome.
Remember when I told you that the USD Index could rally against
conventional wisdom when the rates are actually cut based on the
buy-the-rumor-sell-the-fact type of reaction?
I think we have the same thing taking place with regard to the attack
on Fed’s independence. If this is the case, and the maximum
chaos and pressure was just hours ago, then what could happen is
actually stabilization (of the current level of pressure/chaos) or
actually de-escalation. Note: I’m not saying solving or fixing
anything – I’m saying that the level of pressure could
decline from the current extreme levels.
This means that PMs and miners could be topping now or very soon.
If not, silver could soar all the way to $120 or so before forming its medium-term top.
Thank you for reading today’s free analysis. If enjoyed it and
would like to get the follow-ups, I encourage you to sign up for my free gold newsletter today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder
Golden Meadow®
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