Michael Oliver, founder of Momentum Structural Analysis, joins us for a discussion on how macroeconomic themes and technical momentum trends will impact the general US equities, gold, silver, and the precious metals mining stocks. We start off reviewing what will happen as the largest asset bubble in history continues to pop, where it is will continue to expose compounded errors in decisions and assumptions, made by individuals, businesses, and governments, that arose from over a decade of low to zero interest rates. That era of free money, fueled by a constant injection of central bank liquidity, resulted in the longest and steepest move higher in general stock market indexes on record, from 2009 to 2021. However, now the dynamics have drastically changed since then with the Fed’s intense period of monetary tightening, taking rates up over 5%, and with general equities and financial markets starting to unwind.
We reviewed how Michael had noted the momentum signals in the general equities having topped out in January-February of 2022, beginning a new secular bear market in stocks. With regards to the financial sector, he had warned in late January to early February of 2023 that the SPDR S&P Bank ETF (KBE) looked ready for an ambush, which then played out during March and beyond. He also noted that the broader and more diversified Financial Select Sector SPDR Fund (XLF) started showing cracks over the same time period. Michael points out that piling into a narrow selection of heavily-weighted mega-cap leadership is skewing the major stock indexes like the Nasdaq 100 and S&P 500, giving investors and the media a distorted view of what is actually happening in the broader markets. He is watching for signals of a rollover to the current intermediate-term rally, where the general equities will enter the next leg down in the bear market, and that this should be a boon for the precious metals sector.
We review the relative strength that gold and silver showed in 2022, compared to almost all other asset classes, something he expects to continue moving forward. A primary factor that gold is sniffing out is that as the central banks will need to get busy printing more money in the near future, it will continue to devalue the purchasing power of fiat currencies, and will underpin a move higher in the precious metals. While silver and the PM mining stocks have lagged the moves in the gold, he expects that when sentiment does truly shift back to bullish in the sector, that they will take off to the upside “like a wet bar of soap,” catching up and outperforming the upward moves in the yellow metal.
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