The Gold and Silver Crash is Inevitable and Predictable by Market Structure

You've heard many narratives from pundits why gold was going to hit $6,000, and silver to $150 right before Friday's crash.

Now, you'll find many explanations why silver and gold crashed on Friday. But the bearish arguments were valid long before the crash, and the bullish arguments are still valid after it. The truth is that silver and gold crashed on Friday because of market structure.

1. Gold and Silver have been hijacked by the speculators in last three months.

Precious metals are traditionally used as hedges to quities because of their near zero correlation. But the correlation between QQQ and gold is 0.78 in past three months. Gold has a much higher standard deviation than QQQ. Buying gold now is to buy TQQQ in disguise.

2. Explosive Volatility Made a Crash Statistically Inevitable

Silver's daily standard deviation reached 12% on Thursday. It means that there is a 33% of chance that Silver will go up or down 12% in one day, and 4% of probability that Silver will go up or down 24% a day. Silver has been going up parabolically in last a few months, so there is almost a certainty that silver will crash (down 24% one day). Had Silver's standard deviation pushed to 15% or even 20%, then the crash would be 30% or 40%. The standard deviation of gold elevated to 6% on Thursday, soit setup for a 12% one day crash.

3. Intraday Volatility Has Broken the Asset Class

Now the hourly standard deviation is 6% for silver, and about 4% for gold. We'll see silver moves up or down 6% in a hour one or two times a day, and even 12% in an hour sometimes. and gold move up or down 4% in an hour twice a day, and even 8% in an hour sometimes.

4. Precious Metals Are No Longer Valid Equity Hedges

Precious metals are not valid hedges against equities unless their correlation returns to near zeo, and the standard deviation returns to about 2%.