Gold Gets Firmly On The Rally Tracks!

February 19, 2020

* dollar bugs continue to slice and dice the currencies… 

* But I did tell you this could happen this week, and to batten down the hatches! 

Good Day… and a Wonderful Wednesday to you! Another beautiful day here yesterday, unfortunately, for me, I was unable to get outside until late afternoon… It was one of those days, when I can’t seem to wake up, so I slept… And slept… and slept… What the body wants, it needs to get is what I say! I missed dinner, and by the time I woke up, it was too late to eat it, so… I had some soda crackers and a Gatorade and called it dinner. We have company coming to stay with us on Friday, so I had better get this out of my system now! Did you know that chemo stays in your system for up to 4 weeks? I do… unfortunately! OK, enough about me! Our Blues are still having problems putting the biscuit in the basket, but they pulled out a victory last night to stop their losing streak. 10cc greets me this morning with their song: Dreadlock Holiday…

Ok, when is this dollar bug rampage going to end? Yesterday, the dollar bugs were back to slicing and dicing the euro, and brining it down to 1.1801 when the books were handed over to Asia… In the overnight markets the euro slipped below 1.08… Which means the dollar is moving higher once again today! 

Gold on the other hand stuffed the dollar bugs under its arm and took the dollar bugs for a ride, up $20 on the day, and ended the day at $1,601 ! Remember Gold’s last visit to $1,600 didn’t last but a day, so will this time see Gold add to its gains from yesterday, or give them back… If the early trading is any indication, Gold is doing just that, adding to its gains yesterday, I might add, as it is up $7 in the early trading today! 

So, what goosed Gold higher yesterday by $20? Well traders finally saw some proof that the Coronavirus is going to disrupt everyone’s economy. Apple announced yesterday that they would NOT meet the expectations for 1st QTR revenue, and they blamed it on the disruptions caused by the Coronavirus. I asked the question the other day about when Traders would see the need to go to safe havens, and I guess we got our answer yesterday!

Stocks actually got sold yesterday! Can you believe that one? I didn’t when I heard it on the news, so I went to my trusty finance app on my phone, and there it was all in red… So, the shift to safe havens is upon us, folks… You know the old song about how Blondes have more fun? One of my fave economists, David Rosenberg, had a play on that yesterday when he spoke on his twitter handle, and said, “bonds have outperformed stocks, showing that bonds have more fun”…

So… the question on my mind this morning is how far will traders take Treasury yields? The 30 year Treasury fell below 2% yield yesterday, It was back at 2.00% this morning, but that was quite a significant move, folks… I know we always pay attention to the 10-year’s yield, because that bond is used to price mortgage rates, but when long-term bonds see buying like this, the bond boys are telling us something… And what it is, is this…. That the economy is heading to dumpsville, and bonds are the place to be, along with Gold… (I added the Gold!)

OK, the currency traders left the Aussie dollar (A$) alone yesterday, as their focus returned to marking down the euro. The Russian ruble, after spending last week dealing with a slip sliding away price of Oil, has recovered a bit, after seeing it’s price go above 64, it has settled back in the 63 handle, where’s it’s basically been for sometime now.

Speaking of the price of Oil… One would have thought that with the Coronavirus fears spreading, that the demand for Oil would go south, but Oil is one of those safe havens folks, and so it is that the price of Oil has risen this week from $50 to $52… the question remains, in my mind that is, How can the dollar bugs be so brazen after the double whammy in economic reports late last week? In case you’ve forgotten, Industrial Production in the U.S. contracted for the 7th consecutive month, with a negative print for January, and the Baltic Dry Index (BDI) fell to 1986 levels!

The U.S. Data Cupboard today has the Fed’s meeting minutes from the last FOMC meeting. I read where traders are interested in seeing the color of the Fed’s Balance Sheet… I wonder what it is they think they’re going to find, other than a Balance Sheet that’s bloated to the gills with Treasuries and pushing the lid of its previous size…  Maybe they’re thining that my some twist of fate or magical mystery tour, that the Fed has been lying to us and their Balance Sheet hasn’t grown to levels that shouldn’t even be being discussed!  

Hey, coming from the trading brotherhood, I can attest that Traders normally believe just about anything, and will trade it with a knee jerk reaction, until somebody looks under the hood. Many times they have to reverse their knee jerk reactions, but in some cases they are one step ahead should it all turn out the way they first thought!  

The Producer Price Index (PPI) (wholesale inflation) prints today, but this one doesn’t qualify in my book, for a real piece of economic data…  But it’s always interesting to see the folks that put together PPI tell us there’s no wholesale inlation in the pipeline… What a croc!  The Fed is printing dollars at a hectice pace, folks…  I guess it’s a good thing that the Fed decided years ago to stop issuing Money Supply numbers weekly… 

The Money Supply numbers used to be a BIG DEAL on a bond trading desk, as it was used as an indicator for bond pricing direction. We used to gather around the Telerate monitor and all bet shiny quarter on where we thought Money Supply would print… I recall I won a good number of those bets… As Money Supply was my bag, baby! 

To recap… the dollar bugs continue to mark up dollars and sell the currencies, but Gold has bucked the trading trend in currencies, and has taken the dollar bugs for a ride all the way to the $1,600 handle.  The Coronavirus is starting to spook the markets, just as I thought it would eventually, and eventually began yesterday! Stocks actually sold! I know it’s difficult to believe that one, but it’s true!

For What It’s Worth…  OK, for any newcomers to class… The Gov’t goes into debt, to finance the debt they issue Treasuries. and foreigners line up at the auction window and buy them to hold in their reserves… Late last year I told you about how Russia had sold their Treasuries in reserve, and well, now China seems to be going down that same road…  The article that explains what China is doing can be found here:

Or, here’s your snippet: “Foreign central banks have sold U.S. Treasuries for the last 16 months (the last inflow was Aug 2018). 

In fact, foreign central banks have only bought Treasurys in 6 in 63 months since Sept 2014.

China was December’s biggest seller, followed by Brazil, Luxembourg, and Canada.

China has dumped Treasuries for 9 of the last 10 months with December’s $19.3 bn sale the largest since July 2018.

Japan remains the largest foreign holder with $1.15 trillion, having added $115.2 billion over the year, but even they sold in December…”

Chuck again…  You have to wonder, well at least I have to wonder, what’s taken China so long to get around to selling some of their Treasuries, considering that their economy has been sinking to new depths, and now it is being shaken to the core, with the Coronavirus…  I don’t think China has bad intentions here, just freeing up some cash to put to work in their economy… 

Currencies today 2/19/20 American Style: A$.6691, kiwi .6397, C$ .7560, euro 1.0797, sterling 1.2994, Swiss $1.0167, European Style: rand 14.9407, krone 9.2852, SEK 9.8006, forint 311.26, zloty 3.9550,   koruna 23.0823, RUB 63.74, yen 110.44, sing 1.3922, HKD 7.7706, INR 71.45, China 6.9962, peso 18.58, BRL 4.3388, Dollar Index 99.49, Oil $52.80,   10-year 1.56%, Silver $18.31, Platinum $1,012.57, Palladium $2,757.75, and Gold… $1,608.40

That’s it for today and this week…  You know, when the Pfennig was first published by the Aden Forecast, I told Pam Aden that I intended to write 4 days a week, and eventually go to 3 days a week…  I really hadn’t planned to do that now, but with the doctor situation I have to… So, Sorry about that…  Well, I woke up enough to watch both our Blues and Missouri Tigers win their respective games last night… I’ve gone to YOUTUBE TV, which allows me to see my St. Louis stations, which means I no longer have to hook up my Ipad to the tv to watch my Cardinals and Blues when I’m down here!  I think all the sleep is out of me this morning, so that’s a good thing! As it looks like another beautiful day again today outside!   The Cardinals’ pitcher that reported injured to Spring Training, will miss the fist month of the regular season… UGH! Next man up!   I think I’ve told you this before but here it is again, I simply love Al Stewart’s music! And this morning Al Stewart takes us to the finish line with his song: On The Border…   I hope you have a Wonderful Wednesday, Tub Thumpin’ Thursday, and Fantastico Friday, and please Be Good To Yourself!

Chuck Butler