Markets Plunge: The "Red Line Indicator" Just Triggered
For years, this signal has preceded some of the most dramatic stock moves—96% on JPM, 275% on XLF, 583% on XHB—especially during times of market turmoil. Those who recognize it have a major opportunity at hand. You can learn how to spot this signal yourself - there's no mystery once you know what to look for. Take a look… | | Gold and Silver Shine Amidst Chaos - Here's How to Play It
by Brandon Chapman, CMT | If you were to look at the CPI and PPI inflation prints over the past couple of days, you might be wondering why gold and silver are heading higher as the market is heading lower. In order to explain, let me ask you: What is inflation? | Over the past 50 years, as we've collectively considered inflation, we've seen our focus change from money supply to prices of goods. That was problematic for gold post-COVID as policies restraining production caused prices to rise absent any money supply factors. In fact, it was an issue that Fed Chairman Powell talked about as he was raising rates in 2022. | The reality is that gold isn't a hedge for inanity and bad policy. It's also a negative yielding asset over time. You can believe it's money or you can believe it's a commodity, but not both. The reality is that it's not a good commodity, but it has held up as a form of money for a loooong period of time. | The understanding of gold as money is a key since there specific criteria that makes money, well, money. Here are two important factors: | Divisible Rare… but not too rare
| The fact that gold meets these two criteria opens it up to be considered a medium of exchange and a store of value. | So back to the reason gold and silver are rallying today. It's easy, the dollar's value is declining. This is a result of the understanding that money has no value except as a medium of exchange or store of value. If the dollar is falling in value, gold necessarily rises in order to preserve its purchasing power. That means the real question about today's rally in gold is why is the dollar weakening and how do we know? | What Is the Value of the Dollar? | How do we ascertain the value of the dollar at any given moment? Most people will mention the U.S. Dollar Index (DXY), but that is just the relative value of the dollar, mostly against the Euro. There isn't a way to track the dollar's value in real time unless you have something to compare it to that doesn't change in value. | If you were to scan all possibilities, is there a better example of unchanging value than gold? Sure, there is a paper market for gold that has leverage, but it's as good as it gets. Looking at the dollar price of gold using a product like the SPDR Gold Trust (GLD) can help reflect the change in the dollar's value in real time. If GLD rises, the dollar is falling and vice versa. This is a result of the fact that GLD is priced in USD! | So why is GLD moving higher today? | It's because the dollar is losing value following the lower-than-expected inflation prints the past two days. If inflation is coming off as a result of recessionary pressures, then the Fed has more opportunity to lower rates sooner. See! That wasn't hard, right? | | Equities are reacting to the negative implications and the realization of lower profits and valuation. Silver is impacted by outlook since it's an industrial metal, but at times, there are other drivers of price. | For gold, the expectation of stimulus and the tight market for physical gold is allowing the metal to shine. For silver, these dynamics are there as well, as the price has broken above $33. To a degree, the squeeze is on for metals and the current policies and expected policies help hold it up for now. | | One of the driving forces for movement is a result of potential gamma squeezes in the price from large bullish option trades. When large quantities of calls are bought, the hedging by market makers is a driving force for the stock. | Here are a couple of highlights of large institutional option trades in this space: | AG—14 MAR 25 $6 calls mostly bought SLV—16 MAY 25 33.50/37.50 call vertical bought FCX—16 MAY 25 $44 calls mostly bought
| I posted these in the chat room today after my session. | What to Expect? | Gold has overplayed its seasonal factors since 2014, but the other policy effects has continued to help it. The more interesting opportunity may be in silver. Sure, people talk about the gold-to-silver ratio, but that's only a small part of the picture. What's a potentially bigger mover for silver prices are the amount of short interest above $33 for silver futures. | A similar setup was present for gold back in 2023. Gold struggled to break $2000, but then it finally did for the last time in November of that year. If silver can maintain $33 and above, it may be on the cusp of a similar amount of movement. | | The Bottom Line | We're in a very different market than we've seen in recent years. The policy landscape, while ultimately may be very productive, is not without near-term risks to earnings and growth. I don't envy the work of unwinding decades of waste and debt. The near-term prospects look bright for gold and silver as long as the debt crisis doesn't take hold. Point being, don't throw away risk management and its leadership is a good reflection of overall market risks. | | |
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