With many investors nervous about the currency carnage in emerging markets, is it a setup to break the gold ceiling?
Looking to Break the Gold Ceiling
“Given the setup, from both a positioning standpoint and the action in the miners, the rally ought to continue for quite a while and go a long way, although the metals will remain volatile and try to trick as many people as possible. Nonetheless, this is the best chance we’ve had to see all the “magic” trendlines above the market (i.e., $1,350 to $1,370) finally get taken out. But, as they say in AA, “One day at a time.” — Bill Fleckenstein
By Bill Fleckenstein President Of Fleckenstein Capital
May 29 (King World News) – The Dow and S&P lost between 0.75% and 1% early on, while the Nasdaq barely flinched. The proximate cause for the decline appeared to be weakness in Europe, which of course is emanating at this moment in time from Italy, as once again the concept of the European Union is being threatened. However, I suspect it was really just time for the rally to roll over and this was the excuse...
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Prisoners In A Confetti Cage
How far the problems in Italy undermine the entire EU we will have to see, but that is almost a sideshow because the real problem is that once central bankers turn to ZIRP, NIRP, and QE, they can really never leave that regime — at least not willingly. Markets can force higher interest rates, as we’ve seen in countries such as Argentina, Turkey, Greece, etc., but people say that can’t happen in a G7 country, to which I would say, “Oh, yeah?”
However, so many people in the U.S. have been inured to any bad news due to the anesthetization caused by eight years of QE, critical analysis hardly exists anymore, although macro-oriented problems revolving around massive amounts of debt continue to escalate.
Average Minds Think Alike, Too
Turning back to the action, in the afternoon the Nasdaq finally joined the slide to some degree, as it lost about 0.5%, while the other two major indices fell 1.3% to 1.5%. Away from stocks, green paper was stronger against most everything except the yen, oil lost 1.5%, and the bond market went wild. For everyone who feared the 10-year cracking 3% would certainly cause huge trouble, this is a lesson in what can happen in crowded trades.
The metals were all over the place: higher last night then weaker early in New York before they rallied some, with silver losing 0.4% as gold gained $3.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
PAAS & Silver
Question: Bill: How much impact do you see to PAAS by its cutting back operations at its Mexico mine? Pre-market 5/29/18 hit is 5% decline in stock price. You are always very cautious about mine locations so was this occurrence/risk a surprise to you or was it built in to your position? Thanks for your help
Answer from Fleck: “Mexico isn’t as safe as it once was, but it is still better than many, many other places. But, no, I didn’t expect this trouble near the Dolores mine, although I had heard about it in the middle of last week. I am sort of surprised the reaction has been as big as it has. I doubt this will be a problem for too long. You may recall we saw the same sort of reaction to the brief strike at Huran about six weeks ago.”
An Overreaction
Question: All of us prefer miners in safe jurisdictions. I’m sure you’ll be besieged with questions on this topic, but is Mexico no longer a “safe place?” A work interruption staged by an aggressive union is one thing, but when the rails and highways are unsafe (and the government is on unfriendly terms with its primary trading partner)????
Answer from Fleck: “Mexico isn’t as safe as it used to be, but that for sure isn’t new news. I am not sure what you mean when you say “and the government is on unfriendly terms with its primary trader partner,” if you are referring to Trump and Mexico, that has little to do with this current issue at the Dolores mine. This is likely to be a transitory problem. The company feels that the government will make sure that the mine (and other businesses) can function…”
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