From Wednesday the 28th of Feb until Monday March 11th - 9 trading days - Gold (continuous & GLD) closed higher each day. Silver & Gold Miners played catch up.
I had warned CLUB/EDGE clients that a hot NFP number Friday or CPI print Tuesday could cool its ascent.
Payrolls were weak, with the unemployment rate Friday spiking from 3.7% to 3.9%.
But it was the hot CPI number this morning of 3.8% Core that finally caused the powerful rally in gold, silver & miners to stop.
Core CPI YoY +3.8% vs +3.7% expectations BUT trend is still lower... good for Wall St.
US FEB Core Consumer Prices RISE .4% MoM vs .3% Est and 3.2% from a year ago... bad for Main St.
Prior to this pause, Geoffrey, our MacroAdvisor EDGE contributor, nailed the entire move several weeks back. AND he's still bullish!
February 22nd, he posted his detailed thesis for clients:
He spied the divergence early ~ Feb 12th, with USD falling but 10Y rising.
Feb 25th I posted his MONEY QUOTE:
"ONLY NOW is it worth looking at a scenario that favors devaluation of the USD versus inflation, only now is it worth it to start to look at miners.”
That is a perfect example of Macro-to-Micro, not to mention how the collaboration of precious metals macro analysis really helped to support my live trading room technical analysis for clients.
Precious Metals Trend Reversal?
I posted my intermarket analysis charts for clients last week - everything from my Bullish Percent Index for Gold Miners to Option flow to China buying - and highlighted a @SentimentTrader chart that shows the ratio of gold stocks to gold just dipped below 0.1 for only the 3rd time in ~50 years
Craig, our MacroAdvisor EDGE Manager, also points out there is a large divergence between Gold and 10 yr Tips rates (real rates) over the last year, which supports his bullish bent
What I find interesting is the timing of gold prices breaking into blue skies as term premia on UST rises - we've had 5 auctions in the past few months that have gone poorly.
All of this seems to signify that Gold looks be be a good hedge in a "real" interest rate environment, at the same time, "USD Has Likely Peaked" - my main mantra from November 9th of last year when I took to the Podcast with Roger Hirst to describe why I was bearish the DXY & bullish equities.
With that, yes, gold + silver miners should do well.
Is the CRASH-UP Rally in Markets Still Delayed?
March 1st, I posted that gold spiking would likely cause Nasdaq to calm down.
Tail Wagging The Dog; CRASH UP on hold until after March; & Gold as a Tell
It worked great! Gold moved higher +7% and Nasdaq 100 moved lower -2% since that post.
Now, with CPI coming in hotter than expected, and USD & 10Y bouncing on queue this morning, gold sold off as equities caught a bid.
Market continues to expect NO FED RATE HIKES despite sticky inflation that threatens to re-accelerate.
We are stuck in this stag-flationary affect of a declining trend in Core CPI to 3.8% YoY while prices continue to rise + 3.2% YoY, against a backdrop of a strong labor market that is showing signs of potential weakness ahead given the sudden surge in the unemployment rate to 3.9%.
All of the above ensuring a Fed pause, pushing out cuts, and a market that just doesn't care.
Basically, with a Fed Funds Rate at 5.4%, and a forward annualized CPI at 4.9%, we are realistically looking at 50bp of cuts this year!
Prior to the December FOMC, market was pricing in seven!
So the fewer cuts priced in, the slower the ascent in markets.
But in this 1999-esque market, pricing out hikes is akin to a cut, so market bounces and NVDA calls for $1K get bid with SPX calls for $5200.
That's just the market we're in!
Almost Euphoric
In my view, either gold catches its breath to remind CRASH-UP chasers it's not to be ignored, OR gold run ends and market melts up.
Given PPI and Jobless Claims Thursday with monthly OpEx Friday, it is more likely indices chop about until end of month.
"Sentiment is overwhelmingly skewed net bullish almost everywhere as the extended rally has driven long positioning to build to extended levels in many markets.
However, the rate of flows has been slowing even as the rally continues and for Nasdaq ETFs, it has turned to outflows." Citibank
Don't be complacent. You know how price changes sentiment. With that, we likely continue to have volatility - intraday - but big picture, we need a macro trigger to interrupt the CRASH UP chasers and trigger a reversal in flows that matter.
Like CTAs:
"We have CTAs modeled long $169bn of global equities(100th%tile) after selling $600m last week" GS
So 100% percentile means really, really, really fully long. And with only really two cuts now priced in, we are losing energy to CRASH UP before month-end.
I can't rule it out, especially since the market continues to be "Overbought But Not Broken" - my expression for months now.
But I also know we are in a period of fiscal dominance against a backdrop of ample bank reserve liquidity & suppressed volatility; bitcoin & AI speculation; loose financial conditions & expected rate cuts; wage growth & fiscally-fueled economic growth; not to mention, a seasonally-bullish election year!
Bonus: Plus the dollar is falling and oil and interest rates aren't spiking!
So what's the immediate macro risk? Craig sums up well:
The Fed is being forced to push out the timeline toward providing more liquidity in this stagflation environment. If they agree, then risk assets will finally start to take a hit. If they fail to agree, and continue to believe they can ease this year, risk asset markets will continue to rally until inflation expectations and actual inflation rise enough to make them uncomfortable enough not to ease.
We will hopefully find out next week! FOMC is Wednesday, March 20th.
I will run my live trading room from 2-3 PM for the Fed minutes and market reaction, then Craig and I will run a Macro-to-Micro Power Hour at the close!
In the meantime, TREND & SWING portfolios are doing great!
I size up MANY CHASES from my live trading room - from FX to Bonds, Equities to Bitcoin. Jump in and ask me your questions! Happy to take a look at what you are trading and offer any insights I can.
Not To Be Missed
I did up a longgggg post for clients this weekend under #intermarket-tells in slack:
Parabolas, Pullbacks & Patience: An Intermarket Interlude - March 10, 2024
US Market Positioning & Option Structure
Key Overseas Charts
Sector Rotation: Divergences Are Not Created Equal
Pullback Indicator - When Does Breadth Divergence in McClellan Summation Matter?
Option Market is Not Giving Up
But Japan might have other ideas...
USD Makes the Weather & Its Rate Of Change Determines Its Severity
Yields Look Vulnerable
Gold, Silver and Miners To Outperform?
Tech Euphoria Does Not Lift All Boats
Bonus Chart: Market Cap Weightings in Big Sector Rotations
And Geoffrey just posted his FDIC BANKING REVIEW Q4 for clients in his channel.
There's a list of issues he raises, a summary and even a video!I guess in summary:
"It's not catastrophic but it's in between quite mediocre for the last quarter,
and somewhat bad-ish."
So that's another risk we need to be mindful of - bank stress and credit contraction - at a time when SMH:SPY is well above 1999-esque levels to indicate euphoric vibes in markets pricing in the future potential of AI that may not match or even reach the real economy. Bears watching.