Originally published on February 7, 2019 by TraderStef at CrushTheStreet.
The markets in mainland China and Taiwan have been closed all week in observance of their Lunar New Year, and this year is the Year of the Pig. It appears the hogs may be back to take some profits in the stock markets after a stellar dead cat bounce. Time will tell.
Rumors were floating around last evening that there were no plans for the U.S. and Chinese presidents to meet on trade. Minions usually hammer out important details for diplomatic deals first, then have a face-to-face with leaders for a stroke of the pen to seal a deal. The POTUS and Kudlow confirmed this morning that he and China’s Xi would not meet before the March 1 trade deadline as previously expected.
“There is a pretty sizable distance to go in U.S.-China trade talks.” – Kudlow
No wonder gold clawed back overnight and the stock markets took a beating in the pre-market and in New York. If the U.S.-China trade war stretches beyond the deal deadline, the potential effect it could have on global growth would embolden the doves even more at the Federal Reserve.
Then we had the Fed’s Kaplan trolling the news ticker today:
FED’S KAPLAN: U.S. ECONOMY IS NOT AN ISLAND – Feb. 7
SHARPLY SLOWING GLOBAL GROWTH LIKELY TO SPILL OVER TO U.S.
EUROPE’S ECONOMY SLOWING ‘SUBSTANTIALLY’ – ‘TEETERING’ ON RISK OF RECESSION
FISCAL STIMULUS REACHED ZENITH IN 2018
FED SHOULD NOT BE STIMULATING ECONOMY AT THIS POINT
SPENDING BILL ALONE ADDED HALF PCT PT TO GDP GROWTH
REPEATS VIEW THAT HIGH NATIONAL DEBT A HEADWIND FOR U.S. GROWTH
SKEPTICAL THAT NEGATIVE INTEREST RATES VIABLE IN U.S.
The most interesting news to surface since the Fed took a dovish turn last month is recent reporting on negative interest rates (NIRP). The Fed really needed Quantitative Tightening long enough to move interest rates back to at least 3% and have some ammunition during the next economic downturn. A recent post by the IMF on the potential for NIRP in the next downturn also brings the war on cash back into the headlines.
How can central banks set up a system that would make deeply negative interest rates a feasible option? “How low can you go?… “In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy.” – IMF, Feb. 5
Santelli Exchange: The negative-rate counterfactual – CNBC, Feb. 6
Yellen also chimed in with doom and gloom about the slowdown in global growth:
Former Fed Chair Janet Yellen on the state of the U.S. Economy… “Janet Yellen said the central bank may have to cut interest rates if a global growth slowdown starts to impact the U.S. economy.” – CNBC, Feb. 6
That Moment Janet Yellen Sounds Just a Little Bit Like Peter Schiff – Peter Schiff, Feb. 7
Jay Powell did not have anything positive to offer on the economic front, either:
Fed chairman says American dream is fading… “Powell, speaking at a Fed event for teachers, was asked by an audience member what he saw as major challenges to the U.S. economy over the next 10 years. Powell painted a stark picture of worsening economic disparities in the U.S. and a decrease in economic growth being felt widely.” – Washington Examiner, Feb. 6
New Fed ‘Stress Tests’ Let Big Banks Get Closer to Edge of Risk… “The annual “Comprehensive Capital Analysis and Review,” was set up roughly a decade ago to prod banks to operate with lower risk — part of a plan to prevent a repeat of the 2008… Under this year’s “severely adverse” test scenario, the big banks must prove that they can withstand a “severe global recession accompanied by a period of heightened stress in commercial real estate markets and corporate debt markets” … The hypothetical U.S. unemployment rate would surge to 10% in 2020, from about 4% now, while economic output would contract for seven straight quarters. Yields on investment-grade corporate bonds would widen by 3.5 percentage points relative to comparable U.S. Treasuries, a condition that would subject the banks to losses on their holdings of non-government bonds… While the test’s economic scenario is more severe than last year, certain parameters of the test are lighter. In particular, stock markets would tumble by 50% instead of the 65% plunge.” – TheStreet, Feb. 6
Biggest one-day drop in key money-market rate since 2009 raises eyebrows… “The three-month U.S Dollar Libor rate, or the London interbank offered rate, fell around 4.1 basis points to 2.697% on Thursday… Without an obvious catalyst, market participants suggested a litany of reasons for the surprise move, including a more dovish Fed and falling rates in money markets. Libor is being effectively phased out and is expected to be largely replaced by other benchmarks by 2021 in the wake of a price-rigging scandal.” – MarketWatch, Feb. 7
Here are a few gold and silver articles worth a few minutes of your time, then on to the gold charts:
Top Picks 2019: SPDR Gold and Gold Miners ETF (GLD) (GDX) – Aden Sisters, Jan. 22
Gang arrested over alleged $80 million gold scam in Hong Kong – CNN, Jan. 25
Bitcoin investors are running from the crypto to invest in gold this year – CNBC, Jan. 26
Silver Shortage Promises to Boost Price in 2019… “With miners avoiding new projects amid global economic uncertainty, the price could spike…. Supply growth has started to slow, more than for any other precious metal.” – Yahoo Finance, Jan. 29
Middle East gold bar demand climbs in 2018 as Iranians seek to protect savings… “The region’s demand more than doubled to 87.1 tonnes from a year earlier, thanks to the quadrupling of purchases in Iran.” – The National, Jan. 31
Gold Is One Wealth Fund’s Refuge in World Gripped by Turmoil… “Azeri fund plans to grow gold holdings to 100 tons by year-end. Movsumov sees Sofaz’s total assets rise to $40 billion in 2019.” – Bloomberg, Feb. 3
Central Banks Haven’t Bought This Much Gold Since Nixon Closed the Gold Window – USFunds, Feb. 4
The Fed Blinked – Gold And Silver Are Going Higher – Investment Research Dynamics, Feb. 5
Gold fever is an opportunity for China… “Why not use this window to regain the reformist momentum? Central banks’ voracious appetite for gold demonstrates growing worries about the anchor of global finance. The dollar, and the trillions of dollars of Treasuries that Asian governments hold, is unlikely to survive today’s Trumpian chaos intact… That, President Xi, leaves the yuan – if you are ready to increase its luster as a global anchor. A golden moment, indeed.” – AsiaTimes, Feb. 6
If you have not followed along with my analyses since the end of 2018, you can find excerpts and links to the charts in my Jan. 24 article “Poker Face Weather With Fibonacci and Gold.” To view a larger version of any chart, right-click on it and choose your “view image” option.
Gold daily chart as of Jan. 24…
“The Symmetrical Triangle that formed within a Throwback (aka handle) of the Ascending Scallop has morphed into a Rectangle Top. The bullish breakout odds for a Symmetrical Triangle are 66%, and 63% for a Rectangle Top. The Throwback remains in play. The first lower trendline drawn up from Dec. 2018 and the 21 Exponential Moving Average (EMA) are providing support right now. All other technical studies remain in similar positions as they were last week. There is a Golden Cross with the 50/200 EMA crossover, all EMAs remain below the price action, the StochRSI is giving no indication of a positive turn, but its bounce along oversold territory is getting long in the tooth. The volumes have begun to show a shallow fall since the Jan. 4 high of $1,298.54. The $1,276.66 low on Jan. 4 has not been taken out while the price chopped within a $22 range for the last two weeks… I remain neutral until $1,300 is decisively breached before riding another sweet spot on this primary bull accumulation phase.”
The next day, Jan. 25, gold and silver spiked. Here is the 1-minute gold chart up to the 5pm $1,303 close. The reason for that price action is covered in “Silver’s Hi-Ho Day Needs a Few Dollars More – Part 2.”
Gold daily chart as of Feb. 6…
“I have a ton of respect for Warren Buffett. I know there are other great investors but he kicks ass and he’s 88 years young.” – MrTopStep on Twitter, Feb. 7
Before moving on to today’s weekly chart, if you missed my live radio interview on Sunday, Feb 3, with Dr. Dave Janda’s Operation Freedom, go to the “Fake News in Gold” overview where you can listen to it and follow along with links to articles, graphics, gold charts, and other interview material referenced during the show. Here is the big-picture gold weekly chart as of the Feb. 1 close that was discussed during the show to highlight the 50/200 Simple Moving Average (SMA) Golden Cross.
Gold weekly chart as of Feb 7…
Not shown on this weekly is a Descending Broadening Wedge, which has been forming on the daily since the Jan. 31 high of $1,326.28 and printed a low of $1,302.81 just before midnight on Feb. 6. Downward breakouts are uncommon with Descending Broadening Wedges when they appear within an upward price trend. The odds of an upward breakout are 75%, and a breakout performs better when volume is trending downward throughout the pattern, as is currently the case. Take a good look at the Jan. 24 daily chart posted above before reading the rest of this weekly chart analysis.
The pattern dominating the weekly is an Ascending Triangle. The Cup ‘n Handle that enveloped the Measured Move Up off the Aug. 2018 low and Ascending Scallop base is very clear on the weekly. The Ascending Scallop’s Throwback (handle) morphed into a Rectangle Top that lasted for 4 weeks, with a $22 price range before breaking out to a $1,326 high. Since the August low, there have been three sweet spot trading opportunities. The breakout from the Rectangle Top marked the third sweet spot. Resistance at $1,326 was due to a confluence of the 500 SMA and 78.6% Fibonacci level. The lower trendline of the Ascending Scallop’s advance and the $1,300 breakout are not violated thus far, so the third sweet spot technically remains in play. The DMI-ADX is holding its bullish Alligator Tongue pattern and all of the moving averages are lining up nicely for further price gains. The only near-term bearish indicator is the StochRSI’s overbought condition that looks long in the tooth, as well as falling volumes. Aside from any recent moves in the stock market or headline news, the fact that mainland China is on vacation for their Lunar New Year this week is partly responsible for the price pullback as traders in the West take advantage of booking profit. Asia’s return to the market next week will likely determine where the chart is heading near-term, or a headline news item during Friday’s trading session may shove the price around beforehand. I remain bullish near-term unless the lower trendline that marks the Ascending Scallop’s rise is decisively breached to the downside.
GOLD CHART UPDATE FEB. 8, 2019…
The analyses I provide are always educational, with the purpose of assisting those who want to learn. It would be easy to say when to buy or sell at a specific price, but how do you learn if someone else or a computer algorithm makes decisions for you? There is also an underlying fiduciary responsibility. I will provide you with the tools and insight, but it is your job to do the due diligence. Many want, but few will reap the rewards, and we all learn something new through the process. With that in mind, here is one of my favorite scenes from “The Gambler.” Talent is something that cannot be learned, but is rather a gift that can be fine-tuned if you choose to do so.
The Gambler w/Mark Wahlberg – Best Scene
Plan Your Trade, Trade Your Plan
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