- When I look at precious metals, I see the potential for a decisive breakout starting any day.
- One potential trigger could be a UAW strike, which could tip the economy into recession.
- If the Fed surprises markets and hikes in September or November, we could get one final flush out in precious metals.
UAW Strike
The United Auto Workers (UAW) could go on strike at midnight tonight, and this is a big deal for two reasons.
- Automotive manufacturing is the largest sector of production in America. According to Peter Zeihan, a prolonged strike (3 weeks or longer) could contract GPD and send the economy into recession.
- Auto workers demand a 40% pay increase in line with what UPS workers got in August. A 40% bump in wages would increase spending significantly, restoking inflation. In other words, the wage-price spiral the Fed dreads.
Union leader Shawn Fain has been very vocal about what they want. I’m afraid this may paint him into a corner where he must deliver to his constituents, and negotiations could drag on longer than anyone wants.
The UAW plans to strike at strategic plants for maximum disruption of day-to-day operations and profitability. It would be the first time the union targets plants of all three companies at once.
Student Loan Repayment
Federal student loans were paused in March 2020 during COVID-19. After multiple extensions, payments will resume next month. The Biden administration is trying some last-minute tricks, but they’re running out of options. Roughly 40 million Americans will have to start paying their bills again, which will be challenging for many.
Inflation Update
August CPI came in hot at 0.6% month-over-month due to an uptick in energy prices. This is not what the fed wanted, but I don’t think it’s enough for them to risk hiking rates again.
https://www.bls.gov/news.release/cpi.nr0.htm
The annual inflation rate jumped to 3.7% from 3.2%, but it’s still well below the current Fed funds rate of 5.25% to 5.50%.
https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
The Gold Cycle Indicator finished at 76.
GOLD BIG PICTURE: This chart looks very bullish. I’m looking for a strong rally with upside follow-through above $1980 to signal a potential breakout.
-GOLD- Over the next few weeks, I’ll be watching for a breakout above the upper trendline. When prices finally break out, I think it will happen quickly, leaving many behind.
-SILVER- Silver dipped briefly below the lower boundary. Prices must hold support near $22.00 to prevent a breakdown towards $20.00. Closing back above $23.50 would support a local bottom.
-PLATINUM- Platinum needs to close above $1000 to establish a bullish breakout.
-GDX- Miners have held support at $28.00, and an upside breakout above the trendline would support a new bullish up leg.
-GDXJ- Juniors held support near $34.00, and an upside breakout above the trendline would support a new bullish up leg.
-SILJ- Silver juniors formed a swing low after closing the gap at $9.09. A strong close above the trendline would be bullish.
-WTIC- Oil is overbought and due for a correction, support around $82.00. Overall, I see the potential for continued strength. A repeat of 2007 could take prices to $165 by next year. The next level of resistance arrives at $94.00.
-S&P 500- A prolonged UAW strike is a serious threat that could tip the economy into recession. Progressive closes below the 50-day EMA would signal underlying weakness.
Expect increased volatility as we head into next week’s fed meeting. I like the setup in gold, and I’ll be on the lookout for a potential breakout in September or October.
Have a great night.
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