To the surprise of the many and the chagrin of the few, the Fed opted to
do nothing with policy today and left rates unchanged despite clarion calls
for a cut. As I wrote about earlier, there was (and is) zero rationale for a
rate cut, what with GDP humming along and the best employment numbers in
fifty years (if you believe them). Stocks moved higher despite several
attempts at profit-taking, but that was no surprise because the Fed wanted to
make damn certain the response to the statement and the ensuing presser would
be a positive outcome.
The victims were bond yields (lower) and the U.S. dollar (lower), but the
S&P rose 8.71 (0.30%), while gold had at its highest close for 2019 at
$1,364.45. The lower U.S. dollar contributed to the advance in the metals,
but we are still caught in a resistance quagmire between $1,350 and $1,375,
with the relative strength index (RSI) screaming "Overbought!"
after an $80 advance.
I am modestly short (hedged) via the GLD puts and await a signal that all
is well and good with the gold trade before giving the "all clear"
sign. On five occasions dating back to August 2016 has RSI for the GLD hit
70+, and every single time we got a sharp decline immediately thereafter.
Each one of those events saw a sharp increase in the Commercial aggregate
short position, which advanced sharply into the rise and led to each of the
crashes. In the past two weeks, the aggregate short position held by the
bullion banks has exploded from under 80,000 to over 200,000, and that, if
nothing else, calls for caution.
I also went back to our old friend Goldman Sachs and
bought the Sept $180 puts for $3.70 in the morning, before the Fed decision
was announced. It is noteworthy that the financials all sold off after 2:15,
which was not the type of reaction I would have expected with rates remaining
unchanged. Higher rates are bullish for banks, as their spreads are currently
disastrous given the inversion of the yield curve. The "Squid" is
right back to the zone where I got short back in May, and appears ready for
another descent. We shall see. . .
Last point on gold: The singular greatest danger over
the intermediate term is that there is no "breakout" on this run,
and that it catches an entire generation of generalists long at the top. As
gold investors, we need a breakout above $1,375 that decisively surpasses
that band of resistance in increasing volume and momentum, such that
resistance becomes support and the entire metals complex undergoes a
structural lift in valuation and sponsorship.
I am currently hedging against that materializing but praying that it
indeed happens, because the gold market since 2011 has been like eight years
of root canal surgery without any sort of sedation or tranquilization (an
experience that Melania Trump knows all too well). As I wrote about at $1,287
three weeks ago, we will have our day, and whether it is here in June or
later on in 2019, it is coming.
[NLINSERT]
Charts courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
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