U.S. Government Shuts Down… Gold Reacts

Quoting:

The government shutdown is once again in the news, and gold is apparently capitalizing from it. It’s all smoke and mirrors as those making the decisions will not cut funding for themselves. It’s just them pretending that they care about the fiscal discipline – which I completely don’t believe in.

But the market appears to be moving on this political theater and gold is up. Silver not so much.

Gold Reacts to Shutdown Headlines

The fact that we did see the government shutdown doesn’t change that much. What matters is how long it will remain shut down. And I don’t think that this will happen for any reasonable amount of time. I view the current closure as a hard-ball negotiation pressure and… well, another part of the political theater. I fully expect this to be reversed any day now.

And apparently, the markets are catching up to this as well.

The USD Index is slightly up after an intraday reversal. No biggie.

What happened from the technical point of view is actually bullish – the USD just verified its breakout above the declining red resistance line.

While the USD Index’s reversal is bullish, we see exactly the opposite thing in gold, silver and mining stocks.

Miners Signal Strong Sell Setup

All of them reversed, and GDXJ even invalidated a small breakout above one of the roundest numbers possible – the $100 level. Both are sell signs. If GDXJ closes below $100 today (which seems likely), this powerful sell signal will be complete.

Gold’s reversal is even more profound as gold is moving down after reaching its Fibonacci-extension-based target.

On top of that gold is making more and more headlines – further confirming the extreme sentiment, which means that my previous comments on it, remain up-to-date:

Gold just moved to this level (precisely to $3,899.15) and then it declined – erasing more than the entire overnight gains. This happened while the USD Index was insignificantly down. Gold is likely in the final blow-off part of the speculative parabolic upswing, and it’s “doing its own thing”.

To be clear – gold didn’t permanently disconnect from the USD. We simply have a moment where it’s moving “on its own” as the rallying prices make it more attractive to other buyers (that’s how investment goods differ from consumer goods, which are less attractive to buyers when they are more expensive). But once the parabola breaks, the slide can and is likely to be huge.

And the decisively rallying USD Index is a likely trigger. There can be more of such triggers, though, for example serious turmoil on the job market. Those statistics triggered the 2020 sell-off, and it seems to me that we’re going to see problems there due to either (or more likely both) of the following:

• The AI revolution, which causes job losses
• The tariff hikes – their consequences are slowly creeping up

The problem here is that while the job losses in 2008 were temporary, the results of the above could be permanent or at least of medium- or long-term importance.

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