Stocks fall, gold rises

Key Points

• Bitcoin broke support at 100K, signaling that financial market liquidity is contracting.
• Major stock indices and ETFs declined as Fed officials hosed down prospects of a December rate cut.
• Copper and uranium miners are falling, indicating doubts over the AI infrastructure buildout.
• Gold rallied to $4,200 per ounce, signaling a flight to safety.

---

Bitcoin broke long-term support at $100,000, signaling a financial market contraction.

Repo markets continue to signal stress, with the secured overnight financing rate (SOFR) above the rate paid on reserve balances.

The $7 trillion in money market funds is already tapped out, attracted by the sizable premium of the SOFR above the overnight reverse repo rate offered by the Fed.

In 2023, the Fed lowered the overnight reverse repo rate (pink above) to encourage money market funds to shift their investments to the repo market. The $2.3 trillion outflow into the repo market helped offset the effects of the Fed’s securities sales (QT), creating the illusion of monetary tightening without actual tightening.

Stocks

The Nasdaq QQQ ETF fell more than 2.0%. The lower Trend Index peak above zero indicates secondary selling pressure, which will likely test support at 590.

Demand for copper and uranium is expected to increase, with AI hyperscalers projected to invest an estimated $5 trillion in data centers and related infrastructure. Copper is required for both electrical and cooling purposes, so hesitation in the Sprott Copper Miners ETF (COPP) suggests growing doubts over the AI buildout. A breach of support at 28 would be a bearish sign for the AI-heavy tech sector.

Demand for uranium is also projected to grow, with the IEA forecasting that global electricity demand from data centers will more than double by 2030 to approximately 945 terawatt-hours (TWh). However, declining Trend Index peaks on the Sprott Uranium Miners ETF (URNM) warn of rising selling pressure.

Gold

Gold rallied to test resistance at $4,200 per ounce as financial markets shifted to a risk-off stance. A breakout above $4,400 would offer a target of $5,000.

Conclusion

Financial markets are signaling tighter liquidity, which will likely cause a secondary correction in stocks.

We are overweight in gold and gold miners, and underweight in high-multiple technology stocks.

We see long-term growth in copper and uranium, but are wary of a correction in the short-term.

Acknowledgments

• CoinDesk: Bitcoin
• Federal Reserve of St Louis: FRED Data
• IEA: AI is set to drive surging electricity demand from data centres while offering the potential to transform how the energy sector works