What just happened in the gold market is very interesting, plus a look at inflation and euphoria.
Gold
October 12 (King World News) – James Turk: Key breakout Friday for gold hurdling above the short-term downtrend line but is gold’s uptrend resuming? Was break below $1910 a bear trap? (See chart below).
BEAR TRAP?
Were Shorts Sucked In When Gold Broke Down
James Turk continues: Time will tell but patience is always rewarded when buying physical gold & silver to protect your wealth from central bank currency debasement.
Bullion Banks Gold Shorts Near All-Time Record
Alasdair Macleod: The latest bullion banks’ gross and net short exposure on Comex. Squeeeeeze??
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Higher Burger Prices And More On The Way
Peter Boockvar: Considering how well markets trade, we can only assume that markets assume more fiscal spending from Congress remains only a matter of when, whether before the election or after, regardless of who wins. Of course if that is Biden, that spending though won’t happen until next year and the size will be dependent on who has the Senate. Either way, assuming another $1.5-2 Trillion gets spent on top of the $3 already used up at the same time the Fed is monetizing it, I just don’t see how we don’t get higher inflation which also means higher long term interest rates where I believe we’re already getting a dress rehearsal for it. Throw in an effective vaccine and the thesis will just get clinched as an inevitable outcome. What separates the current round of epic QE and ZIRP from the last time is that the fiscal spending is here in earnest.
With respect to the odds of a deal before the election, I just don’t see Nancy Pelosi wanting to see a Trump signing ceremony in the Rose Garden (with proper mask wearing and physical distancing of those there unlike last time) of a large spending bill right before the election.
CPI
Tomorrow we will get CPI with PPI on Wednesday and while the housing component (about 40% of CPI) will be limited by the rent side, I do believe that the other aspects of the report will continue to show building pressures.
We are going to get plenty of Fed speak this week but with all of it, many have already spoken since the last FOMC meeting so I don’t expect anything new or market moving. What the Fed needs to do, because they apparently haven’t, is do a study on bank profitability as a result of their policies. They should also look at Europe and Japan. I’m confident of the results, especially for small and medium sized businesses. Even with last week’s rally, the KRE regional bank ETF is where it was in December 2013. First Republic Bank, Regions Financial, Fifth Third Bank, Truist Financial and KeyCorp are the top 5 names in this ETF.
Interestingly reported today, the BoE and the Prudential Regulation Authority are beginning a survey of banks to ask their opinion of how negative rate policy would impact their businesses. The head of the PRA said:
“A negative policy rate could have wider implications for your firm’s business and your customers. The Bank and PRA will consider the wider business implications, including on financial stability, safety and soundness of authorized firms and pass-through to the wider economy.”
Euphoria Rules The Day
Bullish market sentiment as measured by the Citi Panic/Euphoria index continued to cool but amazingly it was so far in the Euphoria camp that even with the sharp drop, it still is considered euphoric.
GOLD: Michael Oliver MSA audio interview released!
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