Reality Check for Silver, Gold Shorts- Weekly Part 2
Thursday and Friday were good for Gold, ugly for Bonds, and putrid for stocks
Housekeeping: This report is in the spirit of the old Barron’s papers we used to read. We are taking off Monday. This should tide you over hopefully. Enjoy
SECTIONS
Market Activity Summary— Fed Reality Check
Week’s Analysis/Podcasts— Miners, 1970’s, China Premium
Research Excerpts— GoldFix Commentary, TD CoT, FOMC, and CTA reports
Calendar— FOMC meeting and rate decision
Zen Moment— Coffee Choices
1. Market Activity Summary
This week saw several metals developments such as Biden, miners (voice comment here), China Gold Premium discussions, Comex Death alert, and some interesting tidbits on Silver. We encourage you to see the compendium of stories listed in this Week’s Analysis section #3 below.
This trading week started out sleepy with Gold and Silver drifting lower while Stocks and Bonds remained stable. The dollar was not the reason for the metal selloff either. The markets seemed to lack interest in general.
Thursday something changed. This change carried well into Friday. All the above mentioned markets seemed to move lockstep indicating the same concern. The dollar and precious metals rallied simultaneously while stocks and Bonds both started to crater.
Taken as a whole, this is a strong market fear of stagflation. Coming late in the week, as it did, the dominant reason is FOMC decision awareness creeping into the market’s collective consciousness.
Portfolio managers became aware of two things simultaneously: First that inflation was back (Oil and CPI confirm this), and second that the Fed would move to squash it. Taken together this forced nervous hands to cover in all markets simultaneously. New shorts in Gold and Silver moved to cover while Stock longs (especially in Tech) began puking.
The Bond market, which can be a wild card in behavior like this, told the tale. Yields climbed on both days especially in the deferred part of the curve while the dollar strengthened. Why?
The bond market was conveying fear not only that inflation was not dead, but that the Fed could also hike again. The dollar rallied because the sellers of Bonds were putting their money in cash, as were the stock sellers. Gold and Silver also benefited from the bond liquidation as a flight to an inflationary hedge.
Taken together we view it as an environment where, if the Fed raises again, Stocks will plummet, the dollar will rally, and after a short covering rally like we saw Thursday and Friday, Gold and Silver will struggle to rally given the dollar headwinds. The ill-advised wisdom will be “The Fed is fighting inflation, get out of Gold” but CTA short-side playing will cease to aggressively continue in Gold and perhaps Silver for fear of the next stage of inflation being harder to control.
One other bullish black swan exists. China seems to be indicating an easing of capital controls again for commodity purchasing. Please note this is a time of year where allocated money to all strategies dries up. On top of that Central Bank gold buying is tapering off. We are personally looking for residual strength to keep Gold and Silver well above their 2022 Fall lows and then take another leg higher in December. Portfolios are positioned for that as well
Stock Sectors/Technicals: Stagflationary behavior
All the majors fell back below their key technical levels
Tech got slammed, Utilities were strong
Basic materials rallied hard, Semiconductors are now very weak.
Banks liked a steepening yield curve
The BigTech stocks gave back a whole week’s gains in one day
Commodities: SPR chickens may be roosting
Wheat was violent
Oil continues to ignore every indicator except its own price
Bonds: More Bear Steepening
Treasuries were orderly and weak with Thursday and Friday being non stop selling
The 2Y Yield rose above (and closed above) the key 5.00% level.
Crypto: Bitcoin Weathers a Vol Storm
Crypto was mixed, Bitcoin was up and Ethereum down a little.
BTC got back above $26,500 with a few violent intraday swings
2. Research:
TD Reports at Bottom:
3. Week’s Analysis/Podcasts:
This week GoldFix wrote and curated over 20 articles and podcasts on Precious Metals, Geopolitics, and monetary economic matters. They can be found here. Below are some of week’s more popular ones:
