Weekly: Gold to $2500; Your 401K Has Questions
Why Silver is Getting Bashed
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SECTIONS
Market Summary: Stocks, EU Bonds, CBs buy BTC, Gold, Silver
Technicals: Oil in danger
Podcasts: Silver
Calendar
Charts: Gold, Silver, and Wheat
Analysis: Your 401k has questions.
Research: Gold to $2500 plus
1. Market Summary
Section 6: As asked by Prem subs and friends with some urgency over the past week.
Is a recession necessarily bad/good for stocks?
Can it get any worse for stocks?
Did stocks start pricing in The Fed's response to the recession?
What is the reason for all this?
We do our best to answer your questions at bottom.
Meanwhile: Equity market valuations have only dropped to the same level they were at during the peak of the DotCom bubble, they are not cheap by that standard. All of a sudden the world stopped worrying about inflation and started fearing recession. Economic data has been collapsing recently.
The big question is if The Fed will actually stick to this plan or fold. The market will likely test this with a rally. The Fed will push back with tough talk, then we see who is boss.
Despite Friday’s late-day ramp into the green (quarter-start flows), US equity markets continued lower on the week. Let’s do a week over week comparison
Last Week’s Checklist Updated
The Fed is more concerned with managing inflation expectations than the inflation currently in the economy.- YES BUT THE TIDE MAY BE TURNING A LITTLE
If the Fed turns its attention to the recession ( most now believe we are already in) from Inflation, then stocks will continue to rally.- STOCKS ARE LOOKING BETTER, BUT THE FED WILL CAP STILL RALLIES
Oil rallying with stocks on Friday says inflation is just not contained yet.- YES. NOT UNTIL THE BIDEN SAUDI CHAT IT SEEMS
Market behavior is already turning from QT behavior to QE behavior- CORRECT, BUT IT WON’T LIKELY GET THE RALLY IN PAST REVERSALS
There are far too many shorts in stocks again that will be gasoline on the fire the next week or so. YES VERY MUCH SO
If Oil continues to rally, we feel the Fed will not back off it’s inflation fixation. Thus stocks would be making a mistake thinking the Fed is dovish again until oil drops and stops.- NO REASON TO THINK OTHERWISE YET
It remains as it has been for the past year. Oil is the key to this next cycle.- DITTO
If Oil does not drop for a reason beyond Fed behavior like War ending or some other supply increase, Powell is trapped.- ONLY A STEEP STOCK DROP WILL TRIGGER COMPLETE REVERSAL WE FEEL
Until later in the summer, the rally may continue unabated as a generation of stock “investors” has their hopes spring eternal again.- SO FAR, SO GOOD, BUT HOW HIGH IS A DIFFERENT STORY
We’re watching oil and think until there is a financial crisis as there always is in rate hike cycles, stocks will rally until they do not. Every rally will continue to be met with tough talk until something truly breaks again.- REMAINS TO BE SEEN. WE NEED A RALLY FIRST
H/t Newsquawk and Zerohedge for data and some graphics.
Sectors:
Noteworthy: energy stocks remained firm while basic materials got slammed. Sell Energy or buy basics? We do not want to buy basics because energy is up anymore.
This is decoupling like all economic relationships now.
Nasdaq was down 4%
Utilities did well
Commodities: All lower here, but not in EU
The dollar ended the week higher, trading back near post-CPI highs but notably the last two days have seen overnight strength hit hard during the US session.
Oil prices bounced Friday after OPEC+ reported that they missed their production goals (again) by an ever growing amount and ended the week very marginally higher. But the bounce want as intense as previously seen
European NatGas continues to soar higher amid Russia restrictions and the absence of US exports due to Freeport LNG's closure.
In 'oil barrel equivalent' terms, US NatGas is now cheaper than WTI Crude, and EU NatGas is way more than double the cost.
Gold ended the week down around 1%, rebounding notably today after breaking back below $1800. Silver was slammed on the week, down over 6%. Copper was also killed. Industrial metals are acting like recession is on, but relief from China is not coming yet. Which brings us to Silver
The CTAs will continue to sell silver until they are wrong, even as they buy stocks again. This will end very ugly, but not until it gets over $22, and certainly not until the CTAs are lopsided short silver and out of their Gold longs.
Bonds: Borrowing from Pierre to Pay Paolo
The biggest gainer from all this sentiment shifting was bonds... globally. European bond yields crashed this week with German 2Y yields seeing the widest high to low swing in their history. The ECB has decided to do QE for countries that need money while doing QT from countries that have it.
It is a fiscal action in all but name. Borrowing from Peter to pay Paul. And it is a sign of increasing fear of fragmented EURO but a strong move to counter it. The long term results are not so easily positive in our opinion.
The two-way volatility seems to be feeding off poor liquidity conditions and off-side positioning today,”- Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence. That means the market is broken frankly.
US Treasury Bonds are rallying from their cheapest level in 11 years relative to stocks.
Crypto: Guess Who Has Been Buying the Dip?
The Central Bank of Central Banks is Playing Now
Bank for International Settlements to allow banks to keep 1% of reserves in Bitcoin
Despite its skeptical approach to digital currencies, exacerbated by the recent cryptocurrency market crash, it looks like the Bank for International Settlements (BIS) intends to extend its hand to the new asset class by allowing banks to hold up to 1% of reserves in cryptocurrencies such as Bitcoin (BTC).
Indeed, BIS’s Basel Committee on Banking Supervision (BCBS) has made the proposal for limiting the banks’ total exposures to “Group 2 cryptossets to 1% of Tier 1 capital” in its consultative document titled “Second consultation on the prudential treatment of cryptoassets,” published on June 30. Source
We can’t tell you how disingenuous this is. Bitcoin is now held by central banks as a Tier 1 asset. Translation: Everyone should hold it as a tier one asset unleveraged for ever at 1% of your own net worth.. That’s our take from this and our own positions. Also: do not expect it to go up any time soon because of this. It just means more manipulation. Hence no leverage.
2. Technical Analysis
Report Excerpts Courtesy MoorAnalytics.com
GoldFix Note: Do not attempt to use price levels without symbol explanations or context. Moor sends 2 reports daily on each commodity they cover. The attached are non-actionable summaries.
Gold
We have broken out of the $1816 boundary previously mentioned. But we rallied very nicely off the levels mentioned on Friday. The overall assessment is: by the macro numbers bearish; by Friday’s action, short term bullish. By the reasons for the rally, very optimistic. The comment: not surprised if we start the week higher, and unless Silver catches fire, the rally fades. Just an observation.
TECHNICALLY BASED MARKET ANALYSIS AND ACTIONABLE TRADING SUGGESTIONS Moor Analytics produces technically based market analysis and actionable trading suggestions. These are sent to clients twice daily, pre-open and post close, and range from intra-day to multi-week trading suggestions. www.mooranalytics.com
Energy
It’s all bearish and seems to be leaning that way as Biden’s meeting with Saudis approaches. Nervous longs are using rallies to bail. There are still hard bounces, but not like they were. But yet still… Oil isn’t making it easy to play short yet.
Bitcoin
The hits just keep on coming. Expect to see more failures, buyouts, and industry consolidation. Watch how low BTC goes on successive bad news events. That is the clue the bottom is near, if it is at all.
Go to MoorAnalytics.com for 2 weeks Gold, Oil, and Bitcoin reports free
3. GoldFix and Bitcoin Podcasts
Silver Gold, stocks, Mid year behavior, and more.
GoldFix Broadcasts HERE
Bitcoin Podcasts HERE
4. Calendar
Some upcoming key data releases and market events
MONDAY, JULY 4
Independence Day holiday. None scheduled
TUESDAY, JULY 5
10 am Factory orders May 0.6% 0.3%
10 am Core capital equipment orders revision May -- 0.3%
WEDNESDAY, JULY 6
9:45 am S&P Global U.S. services PMI (final) June 51.5 51.6
10 am ISM services index June 54.9% 55.9%
10 am Job openings May 11.1 million 11.4 million
10 am Quits May -- 4.4 million 2 pm FOMC minutes
THURSDAY, JULY 7
8:30 am Initial jobless claims July 2 233,000 231,000
8:30 am Continuing jobless claims June 25 -- 1.33 million
8:30 am Foreign trade balance May -$84.9 billion -$87.1 billion
1 pm St Louis Fed President James Bullard speaks
1 pm Fed Gov. Christopher Waller speaks at NABE conference
FRIDAY, JULY 8
8:30 am Nonfarm payrolls (monthly change) June 250,000 390,000
8:30 am Unemployment rate June 3.6% 3.6%
8:30 am Average hourly earnings June 0.3% 0.3%
8:30 am Labor force participation rate, ages 25-54 June -- 82.6%
10 am Wholesale inventories revision May 2.0% 2.0%
3 pm Consumer credit May $30 billion $38 billion
Main Source: MarketWatch
5. Charts
Gold
Brutal reversal again on Friday. Noone goes home short anymore it seems
Silver
They will keep piling on now
Wheat
Russia is now demanding Rubles for wheat. Watch it this week
Charts by GoldFix using TradingView.com
6. Analysis: Excerpts
Is a recession necessarily bad/good for stocks?
Historically, acknowledging we are in a recession is good for stocks. This is especially true since the 2008 GFC. Why? In a marketplace where monetary policy is the primary driver of stock prices (as opposed to free market forces), the Fed is the Daddy who gives…
Continues at BottomCan it get any worse for stocks?
Historically, in a Fed engineered recession, it does not get much worse for stocks upon public acknowledgement of recession. But have we acknowledged one yet?…
Continues at BottomDid stocks start pricing in The Fed's response to the recession?
Yes they did start, as of last week. The response has been muted, but we are extremely early in that response. It could also be a false start, due to Oil ….
Continues at BottomWhat is the reason for all this?
Inflation is too high, the Fed is worried they have majorly screwed up (they have), diminishing returns of QE and much bigger unintended consequences (no doubt helped by Covid, War, and general inability of bureaucracy to see limitations of monetary policy as cure-all) in applied linear economics. Therefore the Fed has all but told…
Continues at Bottom7. Research:
Goldman on Gold:
Due to little structural change to our model inputs, we keep our gold price upside but delay the price path. We revise our 3, 6 and 12m targets to $2,100/2,300 and $2,500/toz, from $2,300/2,500 and $2,500/toz
We commented on this during the week. The price target is a reiteration as far as we are concerned. The timeframe has been pushed out. But the analysis is very good, even if self-serving. We think they will start playing the long side soon again. Their clients are still long, but not puking yet. And nothing has materially changed to say they are no longer correct. Gold is to us, on deck for a pop in their minds, but not until after something else breaks on the FX side.
***Also at bottom: JPM on Oil, BOA on Recession, Crypto update, and TD Metals Data***
Continues at Bottom