Originally published by Chamber of Merchants
Volatility And Confusion
US trading signalled a market wrought with confusion as the Nasdaq 100 commenced a sharp downturn, the dollar failed to hold its high, bonds were sold off, silver remained eerily high and gold was driven down to test it’s 3 month support.
Dollar
The dollar has commenced what appears to be a rollover. It is too early to say, but as I have discussed over the last few weeks, the case for the dollar is bearish and it appears to have commenced a sell-off after getting most traders crazily positive at highs of 99.08.
Silver
Silver has behaved in a predicable fashion, remaining strong on signs of dollar weakness, although silver should have maintained its higher price range:
Gold, Courtesy of Wonderland
Despite all the correct trends occurring, the economic picture being bullish for the precious metal and with bonds selling off due to expected inflation, gold experienced massive selling pressure down to it’s current level of around $1259:
Just 1 hour ago, Goldman Sachs (NYSE:GS) recommended to all its clients that they should sell bonds and buy gold.
Bonds
The last time government bonds were sold off so aggressively was in September 2015. (When yields go up, bonds are being sold off)
Look at what happened to the stock market in September 2015:
VIX is back again
After the comfortable rebound in the stock market the day prior, the CBOE Volatility Index, the fear and volatility index has swung up again:
Conclusion
Folks, nobody has a clue about what’s happening because prices are pointing in different directions.
But truth be told, the gold price being down is the only factor keeping the markets calm.
The market is confused. Most of the traders I know just coughed up their last gold mining shares. That’s because the gold price should be up around $1300, but it’s not.
There is going to be increased volatility and topsy turvy moves over the next few days.
The Nasdaq was aggressively sold of last night in large volumes in a way that only banks can sell-off.
BONDS are the lifeblood of the US Government. It is the only way they can pay of their existing debt, by borrowing more money through bonds. And bonds are being sold off.
Last year September we entered the unknown of the debt crisis: bonds sold off, gold skyrocketed and President Obama was forced to raised the debt ceiling to prevent a government shut down.
So what is the Merchant doing?
Patron, each of us need to do what we are comfortable with. Today I am expecting confusion in all sectors.
I said it before: as a Merchant, I see a strong case for gold at $1400-$1500 USD. In the short term I cannot predict what funds or banks will do with precious metals.
What I can say is that for my own portfolio, nothing has changed. In fact, if the gold price hadn’t been upside down today, I would have posted on just how strong the case for gold is, given the bond sell-off (That’s a pretty big deal by the way, it’s panic level stuff), given the US Dollar not holding it’s high of 99 on the US Dollar Index and given that I witnessed an extremely strong sell-off in the NASDAQ overnight:
I expect the rest of the global markets to be in turmoil today, confused and panicky.
UPDATE:
It appears that global markets are taking their trade signals from the DOW JONES:
Gold miners and silver miners could very well take a hit today and I don’t have control over how far gold futures will be sold-off. Charting is almost out the window, but the low of $1246 has not been reached. The bounce was off a higher level at $1252
If I had to sum up my thinking in one sentence:
Gold price is being pushed down to ensure that all smart and big money take their positions before the market is alerted to the situation.
Could gold break lower? Yes, we’ve seen how easily the price of gold is thrown around.
Has the case for gold changed? According to me, no.
This is why I do not trade gold directly as a commodity, but rather the producer. It may be the case that gold hits $1200! It could also be $1300 by tomorrow. The price signals are all over the show and I can see that most of the market is being forced to give up their gold and silver miners. (When I say forced, I mean that price is so low that emotions take over and most traders just sell to get rid of stress.)
Now, I’ve been here before. I’m comfortable with what may be another drawdown today. But gold has been lower in the last 4 weeks and I cannot see a reason to exit my positions.
With all the information at my disposal I choose to push through and see how it all unfolds. I am compelled to reason that the Gold price has been pushed to this level so that the powers that be can knock out every trader’s stop loss while they are positioned in gold and gold miners at the very best prices.
The economic situation for gold is sound. The bond market is looking dim, the stock market is starting to wobble.
How long will this last? Your guess is as good as mine. Some may be comfortable to sell now and buy back later, but when is later?
If the bond market continues to sell off as it is doing right now, I expect the global markets to run to safe haven assets fairly quickly and that includes gold.
I’m just a trader, so don’t base your decisions on this information. I may be wrong, I may be right, but I hope that my thoughts have given you some insight into the bigger picture as we enter the unknown.
Think more. Feel less.