Desperation Rising To A Crescendo

Awareness of the presence of manipulation in almost all markets is improving; it is the exception among markets not to find frequent complaints about evidence that the market is behaving in a strange and counter-intuitive manner. Yet, on the other hand, the reaction of precious metals to the NFP announcement, on the first Friday of the month, has become so regular that a steady or rising market on that day will be considered to be counter-intuitive. Also on the way to be recognised as ‘normal’ behaviour is when the US dollar turns bullish as soon the 10-year US Treasury note turns bearish. The Fed is already up to its ears in Treasuries and is the main buyer at the regular auctions; it does not want foreign holders of Treasuries spooked and becoming sellers because of falling prices in their own currencies. The more diffuse markets, like housing, less open to direct manipulation, are indirectly steered in the desired direction by spin, by spurious statistics and by subsidies. The blatancy with which all of this is now being done must be a sign that desperation is taking hold.

There is no doubt that the powers that be face all manner of problems on the global stage; Syria and the Ukraine presumably take centre stage – as far as we know? – but the situation in the whole of Asia must be worrisome for Washington. Putin is no Khrushchev or Yeltsin and in China president Xi is far more worldwide than any of his predecessors, while the Japanese ally of the US seems more of a lame duck. But all the posturing in the US media, blatant intervention in US markets and the funds willingly spent on all manner of subsidies and handouts to sustain the illusion of the US as a nation of wealth, health and happiness implies that the Big Bugbear lives at home. The threat is domestic and it is not terrorism.

A year from now the 2016 election will be over. It is reflex in US administrations to do all it can to ensure continuity of the party in power. If that can be achieved, the payoff over the next 2-4 years is a major reward, for politicians and their cronies. A defeat at the polls is a major tragedy to be avoided at all costs. It is imperative that voters remain optimistic about the future and also thankful for what government is doing for them. Much of what is needed is already in place: Wall Street close to all time highs, a strong dollar, 5% unemployment, low inflation and low interest rates, a rising house market and improving economy. The challenge is to keep all of these in place for the next year – a daunting task that requires ever more drastic action.

No wonder that we can now see evidence of the work being done on Wall Street, in the PM markets, the US dollar and likely to become even more blatant as the cracks begin to appear, as they may be doing for the 10-year Treasury note. Desperation.

Euro-Dollar Chart

One could easily begin this review by saying the euro shows Europe is in trouble; a glance at other forex rates however shows that it is the dollar that is strong against all currencies. The reason is not clear, except if one subscribes to the assumption that a weaker treasury market and a stronger dollar is a pair made in TPTB heaven. A week ago the euro had just broken below support at the bottom of bull channel KL ($1.1144) and the weaker trend extended last week, just as the yield on the 10-year moved higher off the 2.0% level. Last week it was speculated support at line D ($1.0650) could come into play again if the bear (or dollar bull) persists. It now is quite possible that the support could be tested as early as this week.

Euro-dollar, last = $1.0740 (www.investing.com)

Dow Jones Industrial Average (DJIA)

Wall Street is without doubt the most important indicator of economic health for the man on the street. It seems probable that much if not most of people’s 401(k)’s are invested in stocks, be it directly or indirectly though various funds. Workers’ hoped for happy retirement is therefore closely linked to a bullish Wall Street and a happy voter is more likely to vote for the party of the Administration – and the opposite is also true!

The new rally following the shake out on Wall Street and a period of consolidation is as steep as the preceding sell-off and does not look to be over. There is a common feature on many price charts that is described as a ‘goodbye kiss’. It happens when a price breaks from a major pattern or through a significant trend line. After having set the new direction, the price reverses trend and returns to briefly touch the trend line before resuming the new trend. What develops this week will be watched to see if the move higher becomes a much delayed goodbye kiss on line M (18161).

Dow Jones Industrial Index, last = 17910 (money.cnn.com)

Gold PM fix - Dollars

Gold price – London PM fix, last = $1088.90 (www.kitco.com)

Against expectations, the break higher from the large pennant GL ($1129) failed to hold. The sustained selling of futures on Comex has taken their toll and peaked, as expected, on NFP day. Key support at line R (1136) had no effect and the price of gold fell all the way to the old support line C(1094), breaking just lower.

The imminent bull market after the break above pennant GL is now history and it all hinges on whether support at line C can come into play to kick-start a new recovery that may have better success. The $23 dollar steep fall for gold in a reaction to the NFP figure – or perhaps just as a matter of conditioned reflex! – is so blatant that it actually comes as a surprise, even though something was expected. It is as much a case of overkill as the hard work being put in every day to get the DJIA back above the key 18 000 point level – something that was predicted here weeks ago.

A question that time will answer is whether this is all about gold, or is the gold price being used as a lever to smash silver? Various indications point more to a mounting shortage in readily available silver as the threatening problem in the PM markets.      

Gold PM Fix - Euro

Even the renewed weakness in the euro could not prevent the euro price of gold to rebound steeply off resistance at line X (€1058). Previously, line X had behaved as strong resistance and also as firm support, and it has again repulsed an attempt to break though the line. Now support at line L (€1003) assumes key importance – a break below bull channel ML would have line S (€993) as major support.   

Euro gold price – PM fix in Euro, last = €1013.5 (www.kitco.com)

Silver Daily Fix Chart

Silver daily fix, last = $15.08 (www.kitco.com)

The break higher from pennant GS ($14.22) failed in its challenge at on resistance at line D ($16.30) and settled in the usual tight sideways consolidation before the new onslaught on the PM’s last week forced the price clear below support of bull channel KL ($16.31). At least the break above the major pennant FG ($14.22) is still above the support of line G, with line S ($14.15) not far from taking over that support role from line G.

The best one can say is the outlook remains longer term bullish on the break higher from the pennant, despite weakness implied by the break below channel KL. It is of little consolation, but the desperation evident in many US markets is a positive sign that something will give way soon and thereby return normalcy to the markets.

U.S. 10-year Treasury Note

The yield on the 10-year US Treasury note held above market resistance along line F (2.012%), clear of the psychological 2% level. Ten days ago, late weakness had the yield suddenly moving higher to challenge market support at lines B (2.168%) and L (2.184%), but not making an impression. This past week, the yield cleared line B and then line L as well, again with a bigger jump on Friday. The yield is now in a rising trend, moving clear of the market resistance at line W (2.113%) as if set on a course for line Y (2.493%).

U.S. 10-year Treasury note, last = 2.325%   (www.investing.com)

West Texas Intermediate crude. Daily close

West Texas Intermediate – Daily close, last = $44.29

After again holding near support at line D ($45.18), with quick recovery whenever it dipped below the support, the price started to move higher and challenge resistance at line W ($46.42). The challenge fizzled out immediately, with the fresh weakness taking the price lower, again breaking below the support at line D.

This week should show whether another quick recovery to the safety of line D is on the cards, or whether line W is going to hold firm to push the price lower, perhaps even below channel ST ($41.41). Should that happen, it would add confirmation for the view that the US economy is in worse state than commonly misrepresented. 

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