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Gold and a cyclical stock bear market

Commentaries & Views

Markets have been trading range-bound over the last few trading days, as should have been expected with Monday's holiday and ahead of the major economic data dump scheduled for tomorrow morning at 8.30 AM EST; traders may consider mentally preparing for outsized volatility.

Major outsized volatility may be the final bottoming signal for the metals bulls. They continue to successfully defend the $1832ish spot level, which I have been writing about for a few weeks. The below daily chart shows price grinding along support with stochastic RSI firmly oversold.

Should a bout of major volatility occur tomorrow (which may last into Friday's close), resulting in a weekly close above $1855 spot – that would be a very high probability indicator that the upward trend is resumed, in my opinion.

With the expression "markets never forget" in mind, below is a view of S&P futures dating back to the early 2000s on a monthly interval:

Is the October low, in fact, just a retest of a major breakout? And if so, did we just put another cyclical bear, in a secular bull, behind us? From a technical perspective, evidence continues to mount that this is the probability. However, as readers likely know from experience, it is easy to speculate about your anticipated outcome – in this case, what about the downside?

Below is a zoomed-in chart, on a weekly timeframe, with a focus on a comparison of winter 07/08 versus winter 22/23.

Should the current market fail to hold the breakout above the downtrend line and fail to hold the 200-week average (as it did in 2008), the probability becomes that the bear has further to go; this is not necessarily because it "looks like" '08 but rather because the breakout into a new bull could be a false one, and the opposite move to a false breakout/down could be dramatic.

The primary fundamental catalyst for a downturn would likely be the Federal Reserve providing the market with a huge supply of uncertainty with a renewed rate hike path that is more aggressive than is currently priced in, likely leading to an official economic recession.

Of course, this would smash "soft landing" plans which is the narrative that I think is keeping the market downside in check, to begin with; in my opinion, the Fed won't risk driving a full-on secular stock bear and gold is probably sniffing that out.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.