Market Rundown | Some Truth About Gold and Silver
PLUS: MERRILL, AMAZON, JPM, AND ITALY
While metals drop incessantly, the physical demand continues to be sticky and now both Gold and Silver spot are trading above Comex futures. And those physical buyers are highly unlikely to sell out anytime soon. Trade if you must like we do, but also own as the banks do. Be a bank, not a hedge fund muppet. Be short derivatives as a hedge for long metal if you understand the risk.
Market Rundown:
Good morning. The dollar is down 35. Stocks are slightly firmer up about 25 bps. Bond slightly firmer. Gold futures are down $2 and Silver is up 9 cents. Crude oil jut bounced and is now up $1.78. Nat Gas is up 3 cents. Crypto is strong and Grains are mixed but Soy (which is priced like Silver in tick size and volatility) is down 7%. Soy has been getting hammered lately according to our friend Angie.
Comment: Yesterday as if to quell rising expectations of a 100 basis point rate hike ( in English we are now in the 1.00% territory) Fed member Waller came out and gave what can definitely be the first material sign of a Fed intolerance for more downside in stocks. He strongly played down the chances of a 1.00 rate hike by simply saying ‘Expect a 75 basis point hike in July’.
We say strongly because the stock market was teetering on another blood-bath since it feared even more aggression in light of the 9.1% CPI number the day prior. We also say strongly because the Fed has done almost zero handholding on the way down since February in keeping with the roadmap Zoltan laid out for us all and we wrote extensively on here1
Gold and Silver
To be blunt, precious metals did shit. Why? Historically behavior like that would buoy all assets including Oil and Gold, and especially Silver and Copper. But other than oil, none of the metals really did anything. Here is why yesterday happened as well as the last 3 months restated.
In March we noted Gold buying for several reasons- War, inflation, fear of stock selling which materialized into US investors seeking to put their money in something less volatile during all this insanity. And they did.
Gold held up very nicely. Only oil held up better. But oil was extremely volatile. In fact the retailest of retail banks, MerrilL, started recommending Gold to its clients (see attached).
The market held for a month from all that buying as stocks dove but then: Gold eventually got dragged down by Silver getting slammed repeatedly. Which brings us to number 2
Silver is tied at the hip to Copper more and more, especially with a war showing the vulnerability in economies. This weighed on Gold2
China is still struggling with its own recession (in the form of bank runs now). The combination of recession fears in the US, failed reflation fears in China, and general economy/stock panic, drove CTAs to sell silver3 more aggressively along with Copper.
They initiated shorts in copper and silver for months and finally broke them along with a lack of Chinese buying.
To be clear: this sets us up for a massive short covering rally at some point, We don’t know when, but we do know how ( likely when Copper gets going if China does not implode).
April 20th/May 15th for more detail on this: Weekly: Silver CTAs, Dumb as a Stampeding Wildebeest Herd
This one is old news for many of us:
The psychology is damaged once again by incessant neglect and encouragement by the powers that be to convey these metals are worthless.4
Longs sold on recession fears, and when there is a macro driven (Fed behavior) reason to get long anything, Gold and Silver are the last from so many people getting their wounds re-opened.
Decent data day. Retail sales and UMich will be the big ones. Oil rallied on unintended consequences of yesterday’s rescue. There is still belief that they cannot do to Oil, what they have done to gold. Specifically, paper over the lies.
JPMorgan’s Recap in Stocks (emphasis ours)
Stocks closed lower. SPX fell below 3750 this morning as the post-CPI selloff continued, but was reversed in the afternoon as Fed’s Walker came out supporting 75bps; rates markets lowered the probability of 100bps from ~65% yesterday to ~20% today.
However, uncertainty still remains and tomorrow’s Retail Sales and Consumer Confidence number will give us a better picture: if Retail Sales and consumer’s inflationary outlook are “materially” high, then the possibility of 100bps will increase. The world awaits next week’s NordStream decision.
Research Excerpt: Merrill Lynch(ed) gets their retail clients to buy Gold in March
Excerpt:
Our Portfolio Tilt: Think FAANG 2.0 The original FAANG acronym was made up of company-specific tech leaders that enjoyed sustained growth over the last decade as the economy increasingly digitalized—and then thrived—over the pandemic (and added $3.2 trillion in market cap).3
…our version of FAANG 2.0 reflects a new world of geopolitical risks and resource/hard asset intensity. It’s within these areas of the market—fuels, aerospace & defense, agriculture, nuclear, and gold/metals/minerals—that we find future value given the defining market rotations we expect.
Comment: Secularly Merrill is right, but tactically they are almost always wrong. And witness what happened since this report. Why does this happen? Because research reports purport to be long term, but salesmen go after people with shorter more emotional timelines.
Those “investors” puke at signs of weakness because they have no interest in anything than the next 48 hours. It is endemic to everything in finance and the nature of marketing to people with poor impulse control.
**more at bottom**
Data:
Retail Sales (0.9% MoM survey; -0.3% prior)
Empire Manufacturing and Import/Export Price Index at 8.30am ET. Atlanta Fed Speaks at 8.45ET.
Industrial Production and Capacity Utilization at 9.15am ET.
Univ. of Mich. Consumer Sentiment (50 survey; 50 prior) at 10am ET.Zen Moment:
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More: CTA positions, Amazon stock research, JPM market intelligence, Italy politics