SD Midweek: The summer doldrums are still in effect, but it might not be the Fed that took center stage today anyway. Here’s what’s next…
Editor’s Note: There will likely not be a SD Friday Wrap or a SD Outlook this coming Friday, 8/3 and Monday 8/6. We will be back with our regularly scheduled market reports on Wednesday, 8/8.
The Fed has decided to leave rates unchanged as expected.
This comes as no surprise to anyone.
Interestingly, as the release of the FOMC statement hit the tape, I had to check to see if my computer was still connected to the internet because gold and silver have barely nudged.
This movie was a complete flop.
So it looks like the summer doldrums will persist for a while longer.
There was the slightest of knee-jerk in gold:
But as you can see, there was hardly any movement at all in silver.
Gold and silver are even slightly lower than yesterday’s close.
Here’s what changed from the last FOMC statement, courtesy of Zero Hedge:
Along with some coverage:
The Fed tilted notably hawkish – choosing (as expected) unanimously to keep rates unchanged, confirming “gradual rate hikes” but upgraded its view of the economy from “solid” to “strong.”
Here are the Key Takeaways from the latest Fed decision, according to Bloomberg:
- Economic activity is “rising at a strong rate,” an upgrade from prior wording of “solid rate”
- Most of the minor wording changes are mark-to-market in the first paragraph’s economic assessment
- Job gains “have been strong,” and household spending and business fixed investment “have grown strongly”
- Unemployment has “stayed low” rather than “declined”
- Both headline and core inflation remained “near 2 percent”
- Household spending has “grown strongly” rather than “picked up”
- “Further gradual increases” repeated as expected policy path
- Risks to the outlook still “appear roughly balanced”
- Decision unanimous, with George voting as an alternate for San Francisco vacancy
It’s the same old, same old, and to sum up today’s FOMC in one word, it would be “meh”.
Is “meh” even a word?
I don’t know.
Regardless, gold and silver look like they want to move higher here, and the dollar looks like it wants move lower:
All things considered, however, and those are pretty ugly charts.
There was a slight knee-jerk in the stock market lower:
But when you’re the Fed’s baby, the Fed’s pride & joy, you get a “V”-shaped recovery.
In other potentially market moving news, the White House is expected to unveil more tariffs on China in a little while:
The U.S. is expected to announce 25% tariffs on a proposed $200 billion in imports from China, up from the original plan for 10% https://t.co/IFpR4Q4ubS
— The Wall Street Journal (@WSJ) August 1, 2018
The announcement is scheduled for 3:30 p.m., and may or may not include any comment on the Fed’s decision to hold rates steady.
If the President were to comment on the Fed, then yes, there could be some movement, but if they stick to the script of just tariff talk, then moves could be just as muted as the moves we just saw post-FOMC statement.
In other words, a big snoozer.
Just a friendly reminder: Here’s the way market moving announcements from government work: The announcement is always either late in the day, or after the markets are closed, or the announcement can be a combination of both late in the day and carrying through until the market close.
So there you have it: The summer doldrums are still in effect.
END OF UPDATE
From today until the rest of the week, there are two main events:
Today the main event is the FOMC statement at 2:00 p.m. EST.
We will find out if we are still in the summer doldrums or not this afternoon because as you will see in the charts below, there has really been nothing but sideways drift lately among many of the asset classes.
There are more market moving events before 2:00 p.m. today, but I think that the other events on deck today will not have the same effect on the markets as those events normally would have, were it not for the FOMC announcement.
That’s a long winded way of saying to be on guard at 2:00 p.m. EST for market movement.
There is also the BLS Jobs Report on Friday, which will also be a market moving event, and that data release takes place in the pre-market. This will actually be an interesting number this week because if the economy is really “booming” as so many people claim, we should get a spectacular jobs report on Friday.
Here’s the thing: Is good news in the economy bad news for the markets?
What I mean is that if the FOMC comes out with a hawkish slant in their statement, and if we have an “everything is awesome” jobs report, then the four rate hikes in 2018 (which means there’s two left, likely the end of September and then again in December) are basically a lock. Can the economy handle two more rate hikes this year with the Fed Funds Rate in a float between 2.25% and 2.5%?
It is a long shot that the Fed will raise rates today, with most agreeing the Fed will hold rates steady and simply release its statement (which is not followed by a Powell Love Fest Presser this month) re-iterating the “gradual” pace of rate hikes.
Traditionally speaking, FOMC days and BLS Jobs Report days are days the cartel likes to smash gold & silver, but just how much smash is there left in the metals?
That said, this week could be one of the rare times when we see a rise in the metals prices following the FOMC and the BLS Jobs Report. In fact, I think that this week has a very high chance of that being the case, and possibly catching traders off-guard.
The President Trump forced top in the dollar still holds:
See what I mean about the sideways drift?
The dollar is basically where it was when we started the week, right in the middle of 94 and 95, and it will break soon, because it’s not going to just trade with sideways choppy action indefinitely.
The fundamentals are telling me the break in the dollar will be to the downside, in part based on President Trump reverting to a “weak dollar policy”, and in part based on the overly-bullish sentiment on the greenback.
If the Fed is hawkish, the S&P 500 could give us clues about which way the market is digesting news:
You see, the S&P started the week within spitting distance of new all-time highs, but it is now at risk of rolling over.
If the Fed is hawkish and the S&P 500 does not surge to new all-time highs, but rather drops, that would be an indication that the rate hikes are finally getting serious for a stock market that refuses to drop. In other words, good news for the economy is bad news for the markets.
If the Fed is hawkish and the S&P 500 surges to new all-time highs, it shows that good news for the economy is good news for the markets, which I think will be a mistake to think because it means further rate hikes are not getting priced in. There could be an effort to “run the stops”, which are likely somewhere around 2875, and I would interpret that as “last call” in the bar.
The VIX is certainly not springing to life this week:
Just like the dollar, the VIX is pretty much where it started the week.
Again, how long is the VIX going to just drift sideways between 12 and 14? At some point in the future, the VIX will start waking up again.
Yield on the 10-Year Note did not break-out above 3.0%:
If the Fed acknowledges higher inflation, one would assume rates would begin to price that in. However, if the stock market is indeed topping or clearly rolling over, then we would look to see a move into bonds and rates would begin to drop again.
Things are really getting interesting in the bond market.
I can envision a scenario where the stock market starts dropping, investors flee for the safety of the bond market, which could cause sovereigns to sell into all that buying to smooth out the rate to make it seem like it is not going anywhere, but then, as the US rolls-over its debt and as the US continues to bust the budget with deficit spending, rates could start spiking.
That would essentially clobber the investors who initially fled to the bond market for safety, because as the interest rate of the bonds go up, the price for the bond goes down, so they would have lost in capital terms.
All of this is a long-winded way of saying the smart investors would be better served if their flight to quality was to the true quality – gold & silver.
Copper didn’t have a good night or morning:
You know, businesses keep talking about how the tariffs are affecting their business, but remember that the tariffs have only been recently enacted, and generally speaking, commodities prices are falling, so I’m not sure why there is that blame cast right now?
Furthermore, there is the devaluing Chinese yuan, which also works to offset the impact of the tariffs.
So the impacts of the tariffs and the trade wars so far are far from clear, with every claim leading to even more questions.
Crude oil is still dancing around its 50-day:
The moving average for the price of a barrel of oil is now falling, like it has two other times in the last year.
I’m still sticking to my $80 by year end call, and there is a lot of uncertainty in the crude oil market right now, such as Saudi production, Venezuelan production, super-tankers coming under attack, nations buying from soon-to-be sanctioned Iran, US Shale decline rates increasing, and many more issues that will need to be priced in if those issues continue to escalate.
The platinum chart looks pretty ugly, just like it has all year:
Platinum fell overnight and into the morning, and it really needs to put in a higher-high here, but the momentum looks like platinum wants to head lower.
Palladium’s initial run has also fizzled:
We’ll know soon enough if that’s just healthy consolidation, or just another break-out fake-out.
The gold to silver ratio is still exactly where I said it would be when I made the call weeks ago:
The range is between 78-80.
And as you will see next, it looks like it could stay range-bound for a little while longer.
Gold & silver are showing something very similar on their charts.
Let’s start with gold’s daily chart:
I don’t like that chart one bit right now.
I didn’t draw it, call it cognitive dissonance if you’d like, but I’m aware of it, and it looks like there is a “bear wedge” or a “bear flag” forming in gold.
That’s bearish if the chart pattern holds.
Let’s hope this is truly one of those times where “chart patterns don’t matter in a manipulated market”.
I think it is, because the metals have already been beaten down so much.
Furthermore, the President Trump forced bottom, by piggy-backing his forced top in the dollar, still holds.
I really don’t think there’s much more downside.
Perhaps there is to $1200, just to get the specs to pile on even more shorts, to obliterate them in a short squeeze, if that is indeed the plan like so many are calling for.
And if that is the case, there could be a sweet buying opportunity there.
But I think the President’s bottom will hold.
Although bears are drooling right now at the chart pattern that has formed, so, yeah, this ones tough to call.
Especially with the two main events left in the week, one today and one on Friday.
Furthermore, who’s to say President Trump won’t Tweet something about the Fed FOMC statement today?
That is a wildcard nobody is prepared for.
Silver shows the same bearish pattern:
But again, how much downside is there in the white metal?
I don’t think there’s much downside left, for fundamental reasons including the President forcing the bottom (which still holds), crude oil still hovering around $70 barrel, inflation picking up, the dollar rolling over, the stock market possibly rolling over, sentiment is already in the gutter, and, yeah, there’s more, but you get my point.
There are a zillion reasons why the downside in silver is limited.
And this week may be one of those rare occasions where prices rise coming off of the FOMC and BLS Jobs Reports.
So grab your popcorn – the matinee starts at 2:00 p.m. EST.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.