As vacationers return from summer trips and make the trip for back-to-school clothes and supplies, a huge dose of reality has entered the markets this week, even as everybody was talking about how awesome stock markets are around the world happen to be right now. The Dow is on fire and 22,000 has been firmly taken out. In the US, jobs are coming back and growth is coming back. There is even harmony and unity the around the globe in tightening down the ratchet on North Korea. However, this all changed yesterday, with a 10% move in the fear barometer, and there is now another more than 12% surge in the VIX as markets look to open today:
With Dow and cryptocurrency euphoria nailing all the karaoke hits, landing all their pong balls, and crushing the keg stands as the life of the party, somebody called the VIX police and things are getting out of hand. Specifically, the market is not taking well to the stern warnings on the topic of war. On Tuesday, President Trump turned up the pressure with a stark warning of “fire and fury”. North Korea was not not backing down from the pressure, however, and came back with a warning of its own: Guam is in sights with a missile strike that could be pre-preemptive as opposed to reactive. With two days of increased tension coming off of, as the UK put it, rare unity, in the newest round of sanctions on North Korea, markets are suddenly realizing that war is a very real possibility.
Gold and silver are now stepping up. Gold prices and silver prices made it through Monday night without getting clobbered, and on Tuesday, everybody in the mainstream financial press was still talking about what a great time it is to be a job seeker in the United States with the abundance of jobs and now an abundance of job openings confirming that growth in the United States is back.
To a lesser extent than last Friday, gold and silver prices sold off Tuesday on more job market data coming from the United States. However, yesterday afternoon, after analysts we’re discounting gold as weak and the dollar strong, everything turned on a dime. On Wednesday morning, fear looks to be increasing again, and regardless of sentiment in gold and silver prices right now, the metals are holding up as markets go to the asset class that does not take uncertainty lightly.
Silver seems to have stopped the fall. A look at silver in light of crude oil, however, shows that silver is poised for a rally regardless. On the daily of WTI below, black gold has formed a bull flag over the last several trading days. In the eyes of technical traders, this is bullish, but check out how the chart looks when we compare crude to silver.
Silver looks like it has some catching up to do to crude oil, and if oil is indeed set up for a bounce, which looks to be the case forming on the daily, silver will have to do the catching up at an even faster pace. So fear trade aside, silver is looking good right now.
Gold is holding up nicely:
In gold prices, the attack on the jobs data sticks out like a sore thumb. Notice, however, the action into the war card. Gold has held on from last night and is currently above $1275 in pre-market action.
A closer look at the commodities in general, this time coming from copper, show that the base metals are also forming bullish chart signals, and if we look at the price of copper of late, we have further reasons to get excited about the precious metals as silver is not just a precious metal but also an industrial commodity, and industry is paying more for metals these days. Copper has been putting in excellent chart action as dips are bought and the 50-day moving average is turning up on the daily:
Looking at the dollar, this may be a sign of things to come. Let’s zoom in real close on the US Dollar/Mexican Peso. Sure, not as fun as the dollar index, the Dollar/Japanese Yen, or Dollar/Euro, but look at what has happened on a technical basis:
Two days ago, the dollar tapped the 50-day moving average against the peso, but closed well below. Yesterday, the dollar didn’t even tap the 50-day. While the dollar has bounced over the last couple of weeks, it seems to have lost the momentum. If this is the case of dollar weakness overall, this bounce in the dollar could very well be coming to an end.
It is of interest to put things into perspective on the dollar and stock market fronts as we pulled up this calendar on Monday in our Outlook. The Fed is back to the speaking circuit today. Today we get real estate data, productivity data and wholesale trade data, and after all of those releases are made, the Fed, if they so choose, can do a little bit of cheer leading just in time for traders coming back from grabbing some burgers at SHAK. If the waters get really rough, they have four more opportunities to convey their messages to the markets before we close out the week, so we will know soon enough how things shape up on the broader markets front:
More than anything, we find reason to be optimistic for gold and silver prices. If gold can manage a close above $1275 and silver above $16.75 today, by the end of the week, we may have a whole new outlook. But let’s not hold our breath waiting for confirmation we have seen the bottom.