Waiting for a trigger, ready to slide

It is true that the markets tend to rhyme – repeat their own performance over and over again at identical or different time frames, while preserving the shape of the moves, due to investors’ unchanging psychological traits. This is the foundation of the technical analysis.

But this – this is on the brink of being ridiculous.

Gold shrugs off the weak Dollar

Gold price did the same thing yesterday as it had done on the previous day. And it’s also doing the same thing today. To the letter.

As such, it’s difficult for me to say anything new about the gold price alone…

Fortunately, neither gold nor anything else trades on its own – it’s all related.

And what’s happening in the USD Index provides key context for gold’s non-action.

Over the past two days, the USD Index moved lower. Gold should have responded by rallying. The problem (for gold) is that gold’s rallies didn’t last, and overall gold is trading where it was trading 48 hours ago.

This is precisely what a market does when it doesn’t want to move in one direction – it shrugs off news and events that would make it move in that direction, while waiting for something that would trigger the move in the opposite direction. This is what we see in gold – clearly so.

One more note about the USD Index – it moved below its rising support line, but the 100 level clearly held. Am I worried about the breakdown below the rising support line? No, and there are two reasons for it:

1. The breakdown is not confirmed yet – we had just one daily close below it

2. We saw a smaller, analogous, breakdown about a month ago – and it was exactly this event that triggered the latest big run-up.

Earlier I wrote that this is a market shrugging off the news that should lift it. Let me name that news before wrapping it up for today, because the list is longer than the dollar.

Tuesday's consumer price report was the softest of the year. Headline prices fell 0.4% in June, the largest one-month decline since April 2020, and core came in flat. Wednesday brought a second one, with producer prices down 0.3% against a consensus of no change. The odds of a rate hike at this month's Federal Reserve meeting collapsed from above 40% to somewhere near 10%. Bitcoin took that same news and tore past $65,000.

Gold closed Monday near $4,000, before any of it landed. It trades near $4,023 now. Silver closed Monday near $57.50 and trades near $56.78. So silver is not lagging gold. Silver is below where it stood before the best news of the year arrived.

Which raises the question I expect from you. If my case rests on the Federal Reserve staying hawkish, and the odds of a July hike have gone to almost nothing, why are the metals falling instead of soaring?

The dollar answers most of it, and I covered that above. It held 100 through the entire week. The breakout stands on its own technical footing and does not need ever-rising hike odds to hold it up.

Geopolitical flare fails to ignite safe-haven bid

The rest is that the timing moved and the direction did not. July came off the table. The year did not, and markets still overwhelmingly expect the Federal Reserve to raise interest rates before this one is out. Warsh made sure of it. He testified before the House on Tuesday and the Senate on Wednesday, and he refused to take the win. Asked about the inflation figures, he told lawmakers there might be some who look at the data and say mission accomplished, and that this is not his view. He said the committee has no tolerance for persistently elevated inflation. On the producer prices he allowed that any central bank would be happy to have data going in the right direction, then added that these are all imperfect measures of underlying inflation. He is standing up task forces to rethink how the Fed measures prices in the first place. That is a chairman telling you he will not turn on two prints he does not fully trust.

The war gave the metals nothing either. Overnight brought the fifth straight day of American strikes on Iran, with air defenses firing over Tehran. Iran's foreign ministry says it has no plans to negotiate, and the blockade is biting hard enough that the US military disabled an empty tanker heading for Kharg Island, Iran's economic lifeline. Trump is threatening to knock out Iranian power plants and bridges next week. Gold sat there and fell.

So the sector was handed a soft inflation print, then a second one, then a collapsing hike path, a declining dollar, and a war escalating on the world's most important oil route. It kept about twenty dollars in gold, and silver went to a new low.

For weeks I have written that this sector cannot rally on good news. This week it was handed the best news it is likely to get for a while.

Consequently, it seems that the next decline in the precious metals sector is just around the corner.