We are long on both gold and silver. This is a tactical short-term trade, not a call that a new bull market has returned to stay.
The setup into the FOMC
The trade sits around an FOMC rate decision on October 28th (recorded about 3:30pm Cyprus time). These moments tend to move the market once the rate decision, notes, and minutes come out.
The most likely outcome is no hike, rates held at the same level, with calm minutes. A cut looks unlikely and would be strange, though a cut would be very bullish for gold and silver. The exact words used will be watched closely. If the read comes across as dovish, gold and silver likely rise.
Why only tactical? Because of rates. If any of the bearish drivers do not show up and the pause in rates lasts longer, gold and silver could run further than expected. That is the lower-probability outcome. The exit comes the minute down legs appear.
Geopolitics and the oil-rates link
The US midterm elections with Trump are a nothing burger. Whoever holds power usually loses some ground in the midterms, which is expected. To soften that loss, a peace agreement with Iran has appeared, Trump is pushing nations toward less war, and diesel is flowing from Russia. There are rumors that after the midterms policy could swing back against Iran and start the whole cycle again.
The US voting cycle is being allowed too much influence over international policy. This looks like political convenience.
The core message underneath everything: we are in a fiat and debt-based collapse.
The key chain works like this. Oil up means rates up, which is negative for gold and silver and could trigger a sharp drop. Oil did not fall much on the peace news because the market front-ran it through erratic news flows, which only profited those front-running the headlines. The cry-wolf effect then set in - people stop reacting, so oil has not collapsed. WTI is still around $100.
If conflict reheats - Trump clears the midterms, then moves to the next leg of what Netanyahu wants, an attack on Iran - oil pushes up again. The same risk comes from Ukraine, where a low-tempo war has been devastating for the Orthodox Christian Ukrainian male population, press-ganged off the streets down to old men, with talk of enrolling women too. A reheat on either front lifts oil, lifts inflation pressure, and sends rates back up.
The US 10-year has dropped from its highs. This was predicted - a breather after a fast run up. Many will call this peak rates. That call is expected to be wrong. If oil returns toward $100, the inflation shock reaches portfolios before the headlines admit the danger.
The gold chart
A small head-and-shoulder pattern sits with a key level around 4,030 and a low dipping just below 4,000. Price broke just through 4,000 on an inverted head-and-shoulder, on a very short time frame. After the break came a move up, then static and heated action into the FOMC, a retrace, a bounce on the neckline, and now choppy trading on a down leg.
Price could dip into a range, and if the FOMC is dovish, wind up for a break higher. The head-and-shoulder target is 4,084. On the surface this is small-beer tactical trade - unless conditions extend for longer, with less pressure on the bond market, less talk of war with Iran, and less upward force on oil and rates. Rates are still expected to go higher.
The gold-silver ratio
The daily chart of gold divided by silver shows a three-impulse rising wedge. The red line is the one expected to eventually break.
The pattern played out: a flag at the splitter (the midpoint), down to the far side for the first impulse, a rejection, back up to the splitter, down again for the second impulse. When everyone wanted to be bullish, the call was that it was too soon - a third impulse was still coming, and a third impulse means the ratio goes higher, which is bearish for both metals, especially silver.
Sure enough, the ratio broke with momentum through the midpoint, touched the far side, found support back on the midpoint, and is now in that third impulse. Price went through the 72 level and made a 76 reading. Key levels are 72 and 50. The 50 was support capitulation. That high came with silver at $121 and gold near $5,600, then a violent rejection that began the correction on January 29th.
The watch now is for a top-out at the third-impulse high, which is the highest of all three.
Shooting stars and the 65 level
A shooting star is a daily reversal candle - price pushed too far and got smashed back. There have been three days in a row of such rejection, like troops being beaten back. The typical trade is to short the ratio at the low with a stop, which is the same as going long gold and silver, especially silver.
The ratio did not fall hard. It kissed the classic 65 level, the neckline of a massive head-and-shoulder in the gold-silver ratio that has been discussed for almost three or four years. That level has acted as structural support.
The scenario: a break lower, a reaction at 72, a reaction at 65, then further down - which would be an incredibly bullish period for gold and silver, particularly silver. The move down could be soft but should still be good for both metals.
The day is not done, so the current candle is still forming. If the FOMC comes out dovish and this trades down into another shooting star, it could trigger a downside move that day or in the following days, setting up a tactical trade that serves silver and gold well. A confirmed breakdown through 65 could strengthen silver substantially. If support holds, that bullish scenario is delayed.
Credit markets as the wild card
Rates are the wild card. At the junk end, CCC-rated debt is doing much worse than BB and AAA. Credit markets fray at the fringes - the worst quality fails first. Junk names are companies that barely survived on cheap, abundant borrowing in good times. Like sharks going for the injured fish before the healthy one, the weakest get culled first.
On the benchmark 10-year, yield went as high as 5.365. It now sits around 5, roughly 4.99 to 5.05, just above 5 after running the five level and now pulling back. Credit stress starts with the borrowers least able to survive tighter conditions. CCC underperforming BB and AAA shows weakness spreading from the most vulnerable companies - a signal to watch before any crisis headline arrives.
