This morning, data from Bank of America that showed $70.8 billion in inflows to cash in the last week caught my attention. I arrived back in Florida yesterday afternoon and upon arriving home and checking my mail I couldn't help but notice several letters from various banks offering me 5.00% APY (annual percentage yield) if I open a checking account with a minimum deposit (usually $10,000).
Previously, one needed to venture into corporate bonds in order to get 5% yields. No longer! Today, you can get 5% interest on your checking deposits as long as you meet certain minimum balance thresholds. Needless to say this changes the game for many investors who no longer have to venture far to get 5% interest with an FDIC guarantee on deposits up to $250,000.
The net result of the Fed's tightening cycle of the last 20 months has been to transform cash from "trash" to something that is now much more valuable. By raising the 'price of money' the Fed has managed to reduce the value of an assortment of speculative assets, ranging from cryptocurrencies to small cap stocks, junior mining stocks, and metals like copper and silver.
With many sectors of financial markets suffering enormous drawdowns since Q1 2022, those with cash to invest over the coming months will be able to negotiate investment opportunities on their terms. In most sectors, over the last two years we have transitioned from a seller's market to a buyer's market.
To wit, Cash is King in Q4 2023.
Turning to the most precious metal of them all, gold, I have seen a number of terrible technical takes over the last 24 hours. It seems that everyone and their brother views a very low RSI reading as being "bullish" for gold.
While it's true that very low RSI readings can often coincide with major market bottoms. There are plenty of times when markets become very oversold, bounce a bit (RSI goes up to neutral readings), and then the market in question tumbles ever lower as a dominant bearish trend takes hold.
Context is key, both in life and in technical analysis. One isolated data point with a small sample size backtest is meaningless.
In fact, gold is decidedly oversold after tumbling more than $120/oz in nine consecutive losing sessions. However, as we know very well, oversold can become more oversold, and bearish sentiment can become more pronounced as price continues lower.
Gold (Daily)
In last Weekend's Video, I sharpened my pencil and noted that $1820 was a reasonable downside target for the decline that began after the Fed announcement on September 20th. This morning, gold has reached $1823 after a blowout non-farm payrolls report. There is a good chance we are close to a bounce of some sort.
However, that bounce might only manage to get back up to the $1860 level before we see another decline. Conditions are favorable for gold & silver to reach capitulation level washout sentiment over the next few months. Seeing Costco sell-out of 1 ounce gold bars isn't exactly indicative of washed out retail investor sentiment.
