Gold is ready to unleash on the upside but here is the challenge, plus a look at more transitory inflation.
Decision Time
January 25 (King World News) – Otavio Costa: This is it, folks. A resolution is upon us. Gold looks ripe for a major break out from a bullish pennant. The ideal macro setting after a long period of consolidation.
Gold Ready To Unleash On The Upside
Out Of Bullish Pennant
New interview from legend Doug Casey discussing gold, silver and
global chaos! To listen click here or on the image below.
Gold’s Challenge
Ole Hansen, Head of Commodity Strategy at Saxo Bank: Gold pops higher on a day the US dollar and yields trade up. Reasons: Asset managers reconnecting as stocks tumble and the VIX jumps potentially forcing the FOMC to adopt a less hawkish tone, geopolitics, hikes will not kill inflation, and short covering. Strong resistance ahead.
Important Resistance For Gold (RED LINE)
More Trouble Ahead For The Nasdaq
Holger Zschaepitz: Just to put things into perspective: Nasdaq days like Monday were common. During the Dot-Com Crash! Nasdaq 100 hasn’t wiped out loss of almost 5% since early 2001. Late-day rally latest lurch in volatile market this year, BBG data highlight.
The Setup Is Very Bad For Tech Stocks
Tightening Financial Conditions
Peter Boockvar: I’m going to highlight again the high yield market because that is the next market that is beginning to see a ‘tightening of financial conditions.’ The yield to worst in the Bloomberg High Yield index rose to 4.94% yesterday, up 12 bps and to the highest since November 2020. It was above 5% pre Covid so there is more weakness to come.
In terms of spread to Treasuries, it widened by 10 bps yesterday to 319 bps but is also likely headed higher.
The other index I’m watching closely is the Goldman Sachs Financial Conditions Index because we have to wonder, to say again, how much of a tightening will the Fed tolerate. As seen in the chart below, we likely have a lot more tightening ahead of financial conditions as we so way overshot on the easy side by the end of last year.
More Transitory Inflation
While supply chains will ease, while some cost pressure points will calm, I’ll repeat again my belief that companies that have absorbed a substantial increase in their own costs over the past year will continue to chip away at recapturing it via price increases. I know this is anecdotal but enough anecdotes pointing in one direction eventually make its way into hard core data. Sonoco, a $5.5b revenue global packaging company, said yesterday:
“it will raise the price for all paperboard tubes and cores by a minimum of 6% with shipments in the US and Canada, on or after March 1, 2022.”
The Division VP and GM said:
“Ongoing market tightness, limited paperboard supply and additional inflationary cost pressures to our primary raw materials (uncoated recycled paperboard and adhesives) make this increase necessary.”
Assume Sonoco won’t be so quick to take away this price increase, even if their own cost pressures ease.
Surprise Singapore Tightening
The Monetary Authority of Singapore tightened monetary policy by shifting up its currency band which would allow for a stronger Singapore dollar in order to cushion higher inflation. The timing was unexpected because they did not have a scheduled meeting today. Their next meeting was on the calendar for April after one last October but this move came after the upside seen yesterday in their CPI data. The MAS said
“This move builds on the pre-emptive shift to an appreciating stance in October 2021 and is appropriate for ensuring medium term price stability…While core inflation is expected to moderate in the 2nd half of the year from the elevated levels in the 1st half as supply constraints ease, the risks remain skewed to the upside.”
The Singapore Straits did fall 1% in response while the Singapore dollar rose slightly.
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