We are at the Mines and Money conference again today. As a quick note on yesterday's weakness in Gold and Silver
1- Fed Hawkish Talk - Fleeting but effective for momo longs to run for cover.
2- France Stability - Macron looking even better means less EU uncertainty.
3- Hot Money is Stupid - Gold as safe haven is an illusion if you are hopping in and out. Liquid safe havens are things like Bonds. Long term safe havens are things like homes and gold.
Gold is down again today in the $1226 area as we write this. If you are short, we'd cover 1/2 and let the market take us out of the other half. If you are long with anything less than a 6 month time horizon, you are hoping for an event. V shaped bottoms are spontaneous, macro- event driven things in Gold we feel.
A word about the French Factor and price action:
- Gold rallied 5% on Brexit vote in July with a simultaneous rally of 1.5 - 2.0% in the USD
- Post first round of the French election Gold dropped 2% with the USD down 1.5%. This implied another 1.75% fear factor to go if the EU uncertainty was completely (and erroneously) nullified. That would have put Gold at $1241. Lo and Behold, France is back on Globalist track, and Gold dropped to $1238?
On Gold's Fear Factor
While it is easy to confuse correlation and causation, we simply want to say that $1241 was a real possibility if the fear factor estimates we derived from the Brexit event and others were good. More likely, technical stops hit up below $1255, an important number to Peter Hug.
Previously discussed here:
- June 24th Post Brexit: 2% USD Rally > a 5% Gold Rally. NICE
- April 23rd France Handicap : 1.5% USD Sell-Off > 3.75% Gold Drop = $48 lower = $12.41! CRAP
- April 23rd Post Election (so far) : 1.5% USD Sell-Off > a 2% Gold Drop? ILL TAKE IT !
[Edit - it was nice while it lasted. By this reasoning, $1225 is potentially oversold. Watch for new lows in Gold with no confirmation in the RSI before putting on you rally cap however]
Rationale:
BREXIT- Gold spiked as much as 8% on the Brexit vote news and closed up 5.15% that day. It settled on Comex up $59.30 at $1,322.40, off an early high of $1,362.60 an ounce. The USD went up approximately 2.10% then. So there was an approximate fear factor in Gold of 3% added.
FRENCH FIRST VOTE - If we handicap that concept now, anything under a 4% drop is a win for Gold when the dust settles. We'd be happy if Gold dropped less than $40 tonight when all is said and done. To the extent it does not drop that much, we are seeing a persistency underlying global anxiety. French Election opiates be damned.
The remaining fear factor could be related to the chance Le Pen could beat Macron, but we hope not. [Edit- it is likely that as Le Pen's poll numbers are fading, the rest of that Gold's 'Fear Factor' premium faded with it. - SKG]
But for now the fear factor concept of quantifying how much of the gold price is from global uncertainty is still intact. The tool is still in beta, but if you want to get inspired yourself, go HERE to see just how much the USD and Gold inverse correlations have changed over the past year. Kitco's KGX is an extremely useful and underutilized tool we think.
On Manipulation
Remember when Gold absorbed 22,000 contracts sold into it 2 days in a row? That was not manipulation, that was smart money getting out when it could, as opposed to when it had to.
It was also dangerous to get long (as opposed to being long from lower) Gold above $1280 until silver pierced producer selling. We said as much here, in spite of our own Gold bullishness. Silver rang alarm bells for us.
The manipulation here, if it came, happened AFTER the smart money is out and the smaller funds need to sell. That's when dealers can lean on the market. But can you truly be surprised if metals are manipulated when the largest 2 markets in the world, LiBor and now probably the UST auctions are manipulated? Short term manipulation is just not an excuse for trading losses. Longer term however, market structure lends a hand to price suppression. Caveat Emptor
Metals plunge, Republicans plan a vote, and Macron prevails
Metals fall
Iron ore futures plunged in China, ending the session limit-down, as investor concern over both Chinese demand and Australian supply weighed on prices. Base metals were falling across the board, with copper extending yesterday's 3.5 percent drop, and nickel dropping 2 percent. The Bloomberg World Mining Index of shares fell for the fourth day.
Healthcare bill
House Republicans plan to vote today on measure to repeal Obamacare, with a number of GOP moderates remaining opposed to or undecided about the plan. The success or failure of the vote is seen as a significant test for both President Donald Trump and Congressional leaders who have very little to show by way of legislative accomplishments so far this year.
French debate
A snap survey of likely voters showed that 63 percent thought independent Emmanuel Macron prevailed in last night's head-to-head debate with Marine Le Pen. With polls ahead of Sunday's vote showing Macron maintaining his 20-point lead, markets are unlikely to budge much if he is victorious, but there still could be some winners. If Le Pen surprises on Sunday, the moves would be far greater.
Markets rise
Overnight, the MSCI Asia Pacific excluding Japan Index fell 0.3 percent. Japanese markets remain closed until Monday. In Europe, the Stoxx 600 Index was 0.4 percent higher at 5:52 a.m. Eastern Time as positive earnings from Royal Dutch Shell Plc and HSBC Holdings Plc outweighed the slide in miners. S&P 500 futures added 0.3 percent.
Coming up...
After yesterday's Federal Reserve statement confirming the bank's gradual tightening stance, investors must go back to the data to see if the U.S. economy's soft first quarter was a blip. At 8:30 a.m. Eastern Time, initial jobless claims data are released, with expectations for a drop to 248,000. At 10:00 a.m. factory orders and durable good orders for March are released.
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