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Gold Forecast – Financial Stress Indicators Reach Crisis Levels

By:
AG Thorson
Updated: Sep 29, 2022, 15:36 UTC

Historically, October has seen some of the worst market crashes. Several financial stress indicators are flashing red as September closes – caution is warranted.

Gold FX Empire

In this article:

The MOVE Index

The Move Index is essentially the Volatility Index (VIX) for bonds. When financial markets are stressed – it tends to rise. At 158.99 – it’s now above panic levels.

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Crisis Readings

According to Bianco Research, a rise above 155 in the MOVE index commonly denotes a crisis. The graph below highlights previous events such as the Great Financial Crisis, Iraq War, Worldcom Bankruptcy, September 11th, LTCM Failure, etc.

Source: https://twitter.com/biancoresearch/status/1574877063818973184/photo/1

Treasury Liquidity

The status of Treasury liquidity supports a potential plumbing issue. When markets are stressed, vanishing liquidity causes the average yield error in Treasuries to soar (see below). The recent spike to 2.93% achieved panic levels not seen since the Coivd collapse. If the credit markets freeze – expect central bank intervention.

Source: https://twitter.com/biancoresearch/status/1574877068789162015/photo/

Financial Stress Indicator

Corroborating the potential for a crisis is Bank of America’s Financial Stress Indicator, which recently fell to 1.75. It remains above the Covid spike but still at levels not seen since the 2009 financial crisis.

Source: https://twitter.com/biancoresearch/status/1574877070966005770/photo/1

Gold Price Forecast

Gold has been falling since March over rising interest rates and aggressive Fed tightening. With short-term Treasury yields above 4.00%, I don’t think rates can go much further without breaking something, given the current level of market stress. This looks like a repeat of the 2018 bottom. I expect higher prices in 2023, extending into a 2024 cycle peak.

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Note: Gold could spike lower temporarily…if we see a liquidity event, but overall, I’m forecasting a new advance through 2023 and into the first half of 2024.

Contrary Bullish Indicator?

Below is a headline from the Wall Street Journal asking if Gold Lost its Haven Status? This made the front page of the business section on September 20th. Contrary indicator? I’d be surprised if people still feel this way 2-years from now.

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Bottom Line

In closing, I think gold is very close to a bottom. The next few weeks are crucial. The soaring dollar could increase financial stress, which could trigger a crisis.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For regular updates, please visit here.

About the Author

AG Thorsoncontributor

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle that will begin to unravel in 2020.

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