Gold, Silver & XAU Reinforcing Intra-Year Downtrends; Inflation Peaking?
07/13/22 Weekly Re-Lay Alert: 10-Year Cycle Progression of Inflation – “Today’s CPI report reinforced, yet again, that inflation is alive and well in the US economy. It is, however, entering a decisive time frame when a peak has long been forecast – in 3Q ‘22. That precise peak could be seen in CPI or PPI or other measures of commodity price inflation (GSCI, etc.) but the important factor is that the time frame for a peak is near.
The diagram above reinforces previously-published analysis (2020) that explained why a major bottom in inflation and interest rates was cyclically inevitable and why a ~2-year surge should follow.
The CPI has followed a textbook Cycle Progression pattern on a ~10-year basis – first timing successive highs in 1970, 1980, 1990 & 2000 and then timing successive lows in 2010 (Jly ‘’09) and 2020. (It also created a reinforcing ~5-year low-low-low Cycle Progression with lows in ~2010, 2015 & 2020.)
Following the July ’09 low, the CPI rallied for 26 months – peaking in Sept ’11. Following the May ’20 low, the CPI has rallied for 25 months – hitting its highest level (in over 40 years) in June ’22. That pattern also augurs a peak in the coming month(s).
In order to put this in context, from a broader perspective (since this might only be a 6 – 12 month or 1 – 2 year peak), it is important to review a few key excerpts from recent years. One of them comes from the Sept ’20 INSIIDE Track titled: Outlook 2020/2021 – 40-Year Cycle of Inflation:
8-29-20 – “There has been one primary, overriding expectation… beginning on March 16 – 23, 2020 – when a powerful convergence of daily, weekly, monthly & multi-year cycles bottomed in multiple markets like stocks and Silver… The primary expectation/projection for this period has been an inflationary surge in multiple commodities, precious/industrial metals, foodstuffs, and even equity markets. It has been forecast to be a synergistic, though sometimes staggered rally.
Coinciding with, and potentially causing, that was the forecast for a 12 – 14 month decline in the US Dollar – a sell-off that was/is likely to resemble the 2017 drop and reinforce the decades-long pattern of Dollar declines during Republican administrations and advances during Democratic administrations.
The US Dollar peaked in Jan. 2017 and could drop into Dec. ‘20 or Jan. ‘21 – a slow but overall decline that would encompass the entire administration. Since this is often the driving force for inflationary moves, it is important to review the cycles governing the larger swings (1 – 2 years or more) in the Dollar.
Inflationary Starting Pistol…
With so many metals then fulfilling major downside objectives, as well as multi-month & multi-year cycle lows, the buy signals generated in March 2020 set the stage for a significant uptick in price inflation…
The Dollar concurred, peaking on March 19 and entering what is likely to be a 12 – 14 month decline. Stock Indexes reinforced that, bottoming on March 18 – 23 in sync with the 40-Year & 2-Year Cycles and triggering their own multi-month buy signal.
As is usually the case, cycles and technical analysis fired this ‘starting pistol’ WAY before fundamentals revealed anything remotely similar. In most cases, a fulfilling fundamental factor will not materialize until the middle third of a move or trend…
40YC of Competing Inflation
40 years ago, inflation was considered the ultimate evil in the financial markets as 1980 was experiencing the culmination of a 3 – 5 year and 5 – 10 year surge in commodity and precious metals’ prices – a parabolic move that was crippling the economy.
Paul Volcker set the Federal Reserve into overdrive to combat that inflation.
Fast-forward to the present when the concern is suddenly that there is not enough inflation. So, Jerome Powell just announced a new Fed approach that would (paraphrased) help nurture moderate inflation.
Be Careful What You Wish For!
As is the case with so many cycles, the extremes (beginning and end of that cycle) often time opposing extremes – the beginning of one move and the end of another… or vice-versa.
In this case, 1980 marked the culmination of an incredible inflationary cycle… and ushered in a 40-Year Cycle of Inflationary Vigilance.
40 years later, 2020 marks the onset of what could be a new inflationary cycle – with the first phase unfolding from March ‘20 into April/May ‘21.
There is another irony at play here. It should be watched closely over the next couple years. The culmination of commodity inflation – peaking in 1980 – paved the way for a near 40-Year Cycle of Paper Asset Inflation with stocks and bonds beginning massive bull markets… in 1981 and 1982.
Could 2021 and 2022 provide contrasting action – showing that those bull markets have peaked?
Inflationary Scares?
A myriad of overlapping cycles have been forecasting price inflation – in diverse commodities and precious metals… The following is a small sampling of the commodities forecast to experience sharp rallies in 2Q ‘20 – 2Q ‘21 – bottoming in a staggered manner and expected to subsequently top in similar fashion.
One of those was Lumber, which bottomed in 2009 and set a secondary low in 2015. Leading into 2020, Lumber was projected to set another higher low in 2Q ’20 – ushering in a ‘3’ of ‘3’ of ‘3’ wave advance projected to take hold in May ’20
Another bout of commodity price inflation was forecast for the grain markets with Soybeans forecast to see an initial surge into early-July and a larger overall surge… Then there is another key market that was projected to set a multi-year bottom in 1Q ‘20 and undergo an initial surge into Nov./Dec. ‘20.
For the past year, much of INSIIDE Track’s focus has been on the extremely challenging time that was expected to begin in late-2019. That outlook was based on a myriad of factors, including…
— Energy-related (Crude projected to drop to new multi-year lows based on its monthly trend pattern while Natural Gas was projected to decline into 1Q ‘20 before a multi-year bottom was/is likely)…
Natural Gas has fulfilled ongoing analysis for a drop from 4Q ‘18 into 1Q ’20. 1Q ’20 is the latest phase of a 4-year low-low-low cycle with multi-year support near 1.6000 – the March ’16 bottom… 1 – 2 year traders and hedgers can be phasing into long positions, and/or covering long-term short positions…”
Natural Gas set its lowest daily close on Feb. 28 and intraday low on March 9 – repeatedly testing 1.550 – 1.600/NG, where major support existed. It initially surged into May ‘20 and then pulled back into early-July. That ushered in the second phase of Natural Gas’ projected 2020 surge.
Most people associate Natural Gas demand with cold weather and the need for a widely-utilized heating fuel. However, Natural Gas was projecting multiple surges for April – Nov./Dec. ‘20, revealing something more. Ironically, it was the recent heat wave that spurred the latest demand for Natural Gas as power plants utilize it to keep up with the cooling demand.
When is the next inflationary wave likely to take hold?” [End 8/29/20 INSIIDE Track excerpt]
Leading into early-2020, INSIIDE Track was repeatedly forecasting major multi-year lows in the majority of commodities with those like Lumber, grains, the oil complex and Natural Gas projected to set 2 – 3+ year lows and enter an initial surge into mid-2021 and an overall 2+-year rally as many of these cycle lows were 4 – 5 years or longer in duration (portending 2 – 3 year rallies to follow).
At the same time, stocks had triggered 6 – 12 month buy signals in March ’20 and were forecast to surge into 2021, with some stretching into early-2022… also linked to this 40-Year Cycle of Inflation.
Helping to kickstart this initial surge in inflation (from March ’20 into April/May ’21), the US Dollar was forecast to undergo a ~year-long decline from March ’20 into 1Q ’21 and back down to ~88 – 89.00/DX. Sure enough, the Dollar did exactly that and gave commodity inflation the impetus it needed to confirm a bottom and build some upside momentum.
Throughout 2021, the focus was shifted to 3Q ’22 as the time for the culmination of a second wave of inflation – overlapping the time when equity markets were projected to be suffering an initial sell-off. That is where most of these markets now find themselves as signs of an inflationary peak coincide with the potential for an initial low in equity values.
There could be a third wave of inflation in 2023/2024, after the US Dollar has peaked and interest rates have plateaued… but that is the topic for another discussion. On a more immediate basis…
Gold & Silver continue to decline following their June 3 highs, peaks that were set during the latest phases of corresponding ~6-week & ~12-week high-high-(high) Cycle Progressions. Gold turned its intra-month trend down and spiked lower into mid-month while Silver remains neutral (until a daily close below 18.70/SIU). Neither metal would show any signs of bottoming until (at least) daily closes above 1760/GCQ & 20.10/SIU.
The XAU & HUI are attempting to hold their early-month lows but would not show signs of reversing higher until daily closes above 114.76/XAU & 228.63/HUI.”
Gold, Silver & XAU/HUI Indexes reinforcing multi-month cycles that peaked in late-Feb/early-Mar ‘22. Secondary highs are most likely in mid-to-late-Sept ’22. Multiple signals (weekly trend remaining down, intra-year trend turning negative) are reinforcing signs of weakness and corroborating 2Q ’22 analysis for Gold to drop back to ~1680/GC (see 5/11/22 issue of The Bridge as well as related publications) as part of multi-year wave structure.
What Would Retest of ~1680/GC Mean for Gold?
How Does Gold/Silver Action Reinforce March ’22 Cycle Highs… and 2021/22 Outlook??
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.