Gold Prices And The November Midterm Elections

This is starting to feel like a repeat of 2016, financially speaking. Nervous capital exited the stock market in September/October 2016 before the elections. Gold rebounded in October 2016 as a safe-haven. Trump overcame, fear collapsed, and money rushed out of gold and back into stocks.

We see a similar setup now between stocks and gold heading into the 2018 midterms. The question is - will we get the same results? I think it depends on the polls. If the Republicans maintain majorities in the House and the Senates, then yes, I think the stock market rallies sharply, and gold falters into the December rate hike. If the Democrats take the House and the Senate, then stocks will probably remain vulnerable, and gold could flourish. A split House and Senate will produce mixed or tempered results.

Some are calling for a new bear market in stocks. I just don't see it yet. The yield curve hasn't inverted, and the 10-year Treasury only reached 3.25%. I'd be stunned if that was enough to push the US into a recession with Q3 GDP growth at 3.5%. I think stocks will reach new all-time highs next year and probably top in late 2019 or early 2020.

It looks like miners reached their October peaks on Tuesday after disappointing earnings. Gold could remain buoyant for another week or so...or until the stock market begins to stabilize. Our primary call has been for an October top and November/December decline in precious metals. Seasonally speaking, prices have followed that pattern for the last 5-years.

Yield Curve

Typically, the stock market tops several months (average 10-months) after the yield curve inverts. The yield curve has NOT inverted. Though we've seen a shift in the discretionary versus staples indicator (bottom indicator) the ratio remains in positive territory.

SPY

There are many similarities between now and the 2016 elections. Investors sought safety until the balance of power became clear. Then money fled gold and jumped back into stocks. I believe we will see something similar this year.

The stock market is already oversold. We have positive divergences building in the MFI and NYMO indicators. The ABC measured target suggests prices could reach the 259/260 level. However, it wouldn't surprise me to see a spike to the longer-term trendline near 255.

Bear Market Scenario

I'd be very surprised if the stock market topped before the yield curve inverted and with interest rates just over 3%, but as investors, we need to be mentally prepared for anything. Like the quote from the big short says "It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so". So, if I'm wrong and the stock market is in fact topping, then we probably see something like this in the first half of 2019.

Gold Price Daily Chart

On the daily chart were about to have a 20/50 day bullish crossover. Support resides between $1210 - $1215. What happens next depends on the stock market and the November 6th elections. Progressive closes below the 10-day EMA will signal an initial breakdown. A spike to new cycle highs remains possible going into the polls. However, at 50-days the current cycle is very mature, and additional upside should be limited. Breaking the cycle trendline would establish a November/December decline.

Silver Prices

Prices are coiled like a spring, and I think we will see a sharp move within the next week or so. Which way...I'm not sure. However, I'll be on the lookout for something similar to the May/June timeframe; prices broke higher, then sharply lower. To support a bottom at $13.97, silver would have to rally and then remain above the 200-day MA. When volatility contracts, the Bollinger Band width (bottom indicator) sinks below 2. This often leads to a sharp directional move. See June, August September and now.

GDX

It looks like miners are going to lead precious metal prices lower. I believe they already reached their October highs. Closing below the October 11th, gap, and the cycle trendline will establish a breakdown. To invalidate the November/December bearish outlook, GDX would have to reverse and close decisively above the $20.51 high. Note how GDX tagged the August $20.51 gap on Tuesday and immediately reversed. Price gaps become key resistance/support.

GDXJ

It looks like juniors topped without filling the August $30.55 gap. Closing below the cycle trendline will establish a breakdown into November/December.

WTIC

Oil may be forming another small bear flag. If so, we should see prices break lower within a few trading days. Closing above the 10-day EMA would support a lengthier rebound. The overall structure looks incomplete, and it could take some time to build a bottom.

The next 2-weeks should be interesting. I'll monitor each step and update members daily. I’ll look to buy precious metals and miners aggressively if prices decline in November/December. As the structure develops, I’ll estimate accumulation zones and price targets.

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