Wow, it was a wild week. ECB head criminal Mario Draghi threw markets into consternation when he announced the ECB would not be disemboweling the euro as quickly as they expected. Since every trader in the world was short euros & long dollars, they panicked, sending the euro soaring & the dollar tanking, down a massive 2.4%. Stocks plummeted but silver & gold moved little. Today markets remembered that gold & silver existed, & they jumped. Platinum & Palladium confirmed.
Here’s the weekly scorecard:
|Dow in Gold Dollars (DIG$)||348.35||340.20||-8.15||-2.3|
|Dow in gold ounces||16.85||16.46||-0.39||-2.3|
|Dow in Silver ounces||1,270.59||1,230.45||-40.15||-3.2|
|US dollar index||100.07||98.35||-1.72||-1.7|
First, a footnote. I apologize, my explanation yesterday of why higher interest rates mean lower stock prices was neither clear nor exact. Let me explain it this way.
Suppose a bond pays $110 in one year. Never mind what the original buyer pays for it, the secondary market where you go to sell the bond will value the bond not by the rate it pays on its face, but by the future amount it will pay DISCOUNTED by the CURRENT interest rate.
So if you buy a bond in the secondary market when the prevailing interest rate is 10%, and the next day the interest rate rises to 12%, your bond is worth less.
For instance, a bond that pays $110 in one year, discounted at 10%, is worth $100.00 today in the secondary market. That same bond discounted at 20% is worth $91.67 today.
Stocks are simply securities like a bond, and in the secondary market their value is discounted by the prevailing interest rate. Like a bond’s value, a stock’s value, other things being equal, will drop when interest rates rise.
Or, in the shortest form, “Interest rate goes up, bond price goes down; bond price goes up, interest rate goes down. Stocks, too.”
Never mind all that, no logic lives in stock market heads today. They’ve lived so long under the threat of the Fed raising rates they can’t think of ought else. The LGER (Lying Government Employment Report) came out with more jobs created than expected (they’re hiring at McDonald’s & Walmart) & that sent stock buyers into a buying frenzy. Dow rose 369.96 (2.12%) to 17,847.63 — not quite as high as its 4 December close. S&P500 leapt 42.07 (2.05%) to 2,091.69.
Don’t miss this: despite stocks’ garlicky move today, the Dow in Gold and Dow in Silver continued falling. That spotlights the last highs as the ultimate highs, provided we see further moves downward to confirm. Charts are at http://schrts.co/8Sv0tc andhttp://schrts.co/ohwLZP Both closed beneath 20 DMAs.
Now y’all ponder a moment: when everybody was on the same side of the short euros/long dollars trade & the ECB disappointed them, chaos erupted. Now markets show an 80% expectation that the Fed will raise rates on 16 December, so they’re all long stocks.
But so what? What can a 1/4 of 1% rise mean? Nothing good, so why should anyone expect stocks to rise from a raise? Rather, this will be a classic instance of “buy the rumor, sell the news,” even IF the Fed doesn’t disappoint. What would happen if the Fed flinches? I leave that to y’all’s imagination.
Whether the 2.4% fall yesterday broke the dollar rally’s back or not remains to be seen, but the suspicion of that diagnosis will linger until the dollar climbs over 100.70. Interesting will be what it does when it reaches the 200 day moving average at 96.72, and whether holds or falls through.
Today the dollar recaptured some of yesterday’s 239 basis point loss by rising 71 bps (0.73%) to 98.35. This says nothing, nor shows e’er a sign of recovery. Dollar would have to exceed its 20 DMA, now at 99.39, to show any optimism.
Euro gave back 0.58$% today to close at $1.0874. Needs to close above that 200 DMA ($1.1043) to confirm reversal. Yen closed down 0.45% at 81.21. No trend reversal upward yet.
Investors who had forgotten gold and silver yesterday suddenly discovered it today. Shorts got creamed & gold gave positive witness of a rally.
Gold jumped $22.80 or 2.1% to $1,084.50 on Comex. Silver soared 3.2% or 45.2 cents to 1450.5c. My tripwires for a metals’ rally were 1440c silver and $1080 gold. Both tripped those wires and then some. Gold’s close at $1,084.50 took it comfortably above its 20 DMA at 1,075. Silver’s 20 DMA stands at 1423c, so a 1450.5c close effortlessly left that behind. Gold/silver ratio fell today to 74.767, positive for a rally. Sliced through its 50 DMA (74.59) and 200 DMA (74.05), but didn’t close down there. That’s okay, it will come back down. Loaf has been sliced already.
Any gold strength elsewhere? Gold stock indices jumped like they hit a 440 volt line: HUI up 6.23%, GDX up 5.3%, & XAU up 5.9%. Gold/Bank Stock index spread (confidence in gold vs confidence in the financial system) appears to have double bottomed, July & end-November, and turned up.
On 4 December 1619 thirty-eight English colonists disembarked in Virginia & gave thanks to God. It was America’s second Thanksgiving, the first having taken place in Fort Augustine, Florida in 1518. The one the Pilgrims celebrated up north in 1621 came YEARS later than the first Thanksgiving celebrations in the South. As usual, the South does the heavy lifting, somebody else gets the credit.
Y’all enjoy your weekend.
Argentum et aurum comparanda sunt —
Silver and gold must be bought.
— Franklin Sanders, The Moneychanger