Emphasis Still on Gold & T-Bonds

Michael Oliver of OliverMSA.Com explains why.

Over the past several decades that I have been investing, I have never found a technical analyst better for me than Michael Oliver. I learned to know Michael very well and read all his letter with great care. While Michael is very much a free market libertarian and disciple of Ayn Rand, he never lets his personal bias get in the way of what his proprietary charts are telling him. He has saved me from costly whipsaw moves in and out of gold numerous times since the 2011 peak for the yellow metal.

In his 360O Weekend Report that I received in my inbox this past Sunday, Michael focused mostly on gold and US Treasury bonds both of which he believes are forming a V shaped bottom. Here is what he said about both of those key markets.

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“While the T-Bond’s likely V-bottom process continues to take shape, gold did not wait around for fully similar action from the Bonds. We note that gold’s action last week led the V-bottoming action, now likely to be seen this week in T-Bonds as well. There has been synchronous behavior from both of those markets for months now.

“As we’ve argued, both markets will be seen as “safe” places to be as the massive preexisting stock market bubble (now choked into near cadaver status) unravels further—an unraveling that exposes years of underlying, built-in errors based on “free money forever!” central bank policy.

“The first positive step for gold, as we defined last week, would be a close back inside the prior monthly momentum basing range—action we termed an “abort”of the final down leg on momentum. That was Monday (circled). Then came the surge breakout above a nearly five-month basing range by Friday.

“From the last weekend report: ‘We expect any such upside abort signal will then likely see action move quickly to the top of that prior range at the zero line area. When any return to that zero line area occurs, we do not expect action to pause there.’

100-day avg. momentum (above), longer-term than 3-mo. avg. momentum, also broke out. In its case over horizontal resistance just below the zero line and the multi-point downtrend structure.

Price chart watchers will begin to wake up when $2000 is achieved on a close. That will take out all the descending rally high closes since early June.

Its not the Israel War!

“The Israel situation is no doubt credited by many “market watchers” for the gold rally last week. But not in MSA’s assessment.

“We saw the momentum technicals ripen for months now and then exploited in a rapid manner - as we expected. Technicals that defined the corrective process that has been underway since earlier this year, and a process that had “set-up” structures overhead that are almost always there for a purpose—momentum starting gates for renewed upside. Now exploited.

“Wiser heads see gold as real money that competes with the ongoing, decade-by-decade decline in the real underlying value (buying power) of all major fiat money units. With a new market crisis and debt/credit crisis on the edge now (something that more major asset managers and large banks have now stated as their expectation), the central banks are now very ripe for reversing their bubble bursting actions of 2022 (credit tightening)—out of sheer panic necessity. Gold knows this, and that’s why it has held and regained its upside—despite the brief bear trap low of September last year.

“War in itself does not drive gold. War, at times, might be factor that helps turn Fed policy spigots on again, or not. Example of “not” was the peak in March 2022. A peak for gold and for commodities as well (which had been rising since late 2020 lows). A price peak that occurred several weeks after the Russia/Ukraine war began. And no doubt gold bugs now think—with that image burnt into their memory — that war “caused” a peak in gold buying. Therefore be scared again.

“But that March 2022 peak in gold and commodities was trend shift following an advance that had been underway for months, and when that war commenced late in that price advance it happened to coincide with the first major rate rise by the Fed that has continued to date. Technically gold was positioned for an intermediate trend corrective process at that point. Opposite current technicals.

“More recently the massive move by gold from September low last year ($1613) to early this year—back to $2000 for a third time—also occurred many months before this most recent war event. And that sharp recovery from late 2022 occurred despite the Fed continuing to play the game of “rates high and forever if need be.” At this point in time a war event might be an additional factor of uneasiness regarding further rate hikes. War might be a new factor that creates Treasury Dept. pressure/Congressional pressure/bank CEO pressures on the Fed to cease, especially when this time around (unlike March 2022) the U.S. Government bond market has been in crash-like mode! And now, unlike in early 2022, there is greater concern about government funding, defense spending, defense supplies,etc. Just the sort of “excuse” the Fed can now use as an additional rationale to halt their rate rises. That was not the case in early 2022.

“Gold knows what’s around the next major monetary corner, as it almost always does, and prices itself ahead of those recurring monetary waves. It does not need wars, specific data points, to justify its actions. This massive ongoing trend that you see on the chart above reflects the ongoing boom-bust cycle of central bank(s) monetary policy—with emphasis, of course, on the monetary boom phase which is the primary central bank raison d’être. Gold has sensed that yet a new central bank liquidity/rate cut/ surge is at hand, as the factors that will spark it have built pressures that are now becoming apparent.”

US Treasures (TLT)

Michael uses the TLT, the iShares 20yr. + U.S. Government bond ETF as a proxy for long dated U.S. Treasuries

“The downtrend and horizontal structures are overhead. The trend line comes out first, but we prefer a daily close over the horizontal. That pivotal structure is defined by three prior low closes and two peak rally high closes spanning May to early September (circled). A clear pivotal balance point. A 91.03 daily close breaks out over that line.

“Note that in prior reports we’ve also shown this monthly momentum in weekly bar format. Here we focus on daily action measured against the 3-mo. moving avg., as we suggest that waiting for a weekly closing signal could be costly.

We think that if weekly momentum breaks out (prior page), it won’t take much energy from that signal to in turn trigger monthly momentum.

“Repeating from prior reports: MSA is not arguing a major bull trend will emerge from this upturn in T-Bonds/drop in yields. Only that a significant rebound in this market—counter to its long-term momentum negative trend—is likely. Something that could last a few months. And it will likely be associated with asset managers moving to perceived ‘safer places to be’ other than stocks; heavy large fund shorts in this market (late bears!) being skewered in a short-covering rally; and probably the central bank coming to this market’s defense. We don’t expect the current intermediate trend technical linkage between gold and T-Bonds to prevail over the longer term. For now, tied at the ankles.”

And, yes, even the gold miners! GDX (VanEck Gold Miners ETF)

“Yes, we’d also like to see action clear the 3-mo. avg./zero line at 29.36 by some marginal amount. But as we defined,there has been a gradual parallel downtrend channel on momentum in play here since June (defined by peak and low closes), and it was broken out above Friday. This upside move followed the new price chart lows by GDX the week before—lows that were not matched by new momentum lows.

And for those who like trend lines on price charts (which only begin to have any validity if there are at least three points defining the trend line before a breakout), Friday might be called ‘on the line.’ Any further gains will clear it.”

So there you have it! Michael Oliver now sees a green light for gold and gold shares and a shorter term “go” signal for US T-Bonds.

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