It was another volatile week in the markets, both for the longs and the shorts, with the technical backdrop continuing to deteriorate. Rampant inflation reaffirms the Federal Reserve will continue to reverse the loose monetary policy after CPI on an annualized basis came in at 8.2% versus expectations of 8.1%. The latest CME Fedwatch tool is pricing in a 97.8% chance of a 75 bps rate hike at the November 2 meeting and now a 2.2% of 100 bps. Meanwhile (as I am writing this), the U.K. Finance Minister was fired as they now attempt to reverse the proposed dovish economic plans previously outlined. It seems unwinding over a decade of quantitative easing and interest rates near zero will be very difficult, resulting in stocks, bonds, and housing crashing even from these levels.
When will the Federal Reserve pivot? Unemployment is hovering near multi-decade lows, and economic data continues to beat expectations, keeping the Fed's foot on the rate hike cycle until spring 2023. The first sign of a rate "cut" is not priced in until fall 2023, meaning this bear market is not even close to over. The Fed is attempting to remove all the excess leverage and irresponsible risk-taking in the market while crushing inflation at the same time. I say, "Good luck with that," and "operation break stuff" is underway.
Daily Gold Chart
Our Strategy
If you have been reading my commentary or working closely with me, you would know that my view on Gold and Silver had changed after the early October bounce. Both precious metals are lumped in with other risk assets with an 80%+ inverse correlation to the U.S. Dollar. That correlation alone, bundled with the Global liquidation of risk assets, will keep both metals in bear markets. However, before you cancel me, I acknowledge that both assets could quickly change directions resulting in another massive short-covering squeeze. That is why we maintain upside exposure through calculated option call spreads with extended durations to give us the most prolonged opportunity for "something" to give way.
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