SD Market Wrap: Manipulation May Not Succeed in Keeping Prices Lower For Much Longer

Underwater SundownWhat will be most interesting, will be market trading Monday through Thursday.  Precious metals are trying to put in an organic bottom and rally.  The dip buying proves this.  With signs that the physical market might be tightening and Indian buying about to rise, it’s not likely manipulation will succeed in keeping prices lower for much longer…

 

1 oz Silver Rounds

Earlier this week, forecasting today’s market reaction to Yellen’s yammering was easy, but you must excuse me while I wipe some egg off my face given the circus that followed.

As the markets digested Yellen’s remarks, traders correctly concluded the majority of FOMC voting members remain in dove mode, regardless of the endless threats of interest rate normalization.  As Yellen yammered, traders were pricing in declining odds for a September rate hike.  Let’s take a look at Friday’s trading action:

SD Market Wrap:  Eric Dubin

Gold was initially smashed as computer-driven trading ran in front of and through the introduction of her speech.  

This is mostly an artifact of headlines driving high frequency trading systems.  But it didn’t take long for humans to digest Yellen’s remarks and gold rocketed higher:

 

gold

Silver even made it over $19:

silver

 

Can’t have that, now can we?  Exit Yellen, stage-left, enter Vice-Chair Stanley Fischer:

Source: ZeroHedge

Source: ZeroHedge

Clearly, Yellen and Vice-Chair Stanley Fischer’s comments today were a “good cop, bad cop” setup. Fischer put the kibosh on the organic rally, emphasizing that a September hike is possible and, that the Fed is not political in the face of the Presidential election.  No one believes the Fed is apolitical, and other than seriously questionable BLS employment reports, the majority of economic data continues to show the global economy is spiraling downward and, the US economy is already in a recession in all but name.

 

It also appears that the Bank of Japan was intervening today, given the magnitude of the move in the dollar/yen.  Craig Hemke over at TFMetalsReport.com nailed the sequence of FX price swings with this beautiful chart, and he was kind enough to greenlight TND sharing it with you (his premium service is one of the very few I’m willing to endorse as it’s a great value):

 

large_screen_shot_2016-08-26_at_10.34.10_am

This is frustrating, to say the least.  During past Jackson Hole gatherings, it was typical to see good cop, bad cop jawboning rotation over the course of the multi-day confab.  Today’s sequence of events reflects the fact that Fed policy makers are stepping up their coordination of perception management to a rotation window of hours, not days.

Despite the manipulation, the same deep pocket longer-term long bulls that have been taking on JPM and friends at the Comex nearly all year remain active dip buyers,  They were buying this smash, visible in the Kitco chart above.  

Bracketing Yellen’s  speech, four attempts to get silver under $18.60 failed.  There’s a lot of noise in these manipulated markets, but this dip buying reveals the psychology of these longs, and they are not leaving even if the powers that be manage to briefly paint the tape and push silver lower.

At SD Bullion, Doc is seeing some interesting signals with a small rise in 90% “junk” silver premiums, and our working hypothesis about how the inventory cycle of authorized silver eagle purchasers padding their inventory earlier this year working through the market is unfolding.  Tune into this week’s SD Weekly Metals & Markets for more.  The podcast will be published no later than Saturday morning.

The probability that the BLS will produce another “strong” report next Friday is better than 80%.  What will be most interesting, however, will be market trading Monday through Thursday.  Precious metals are trying to put in an organic bottom and rally.  The dip buying proves this.  With signs that the physical market might be tightening and Indian buying about to rise, it’s not likely manipulation will succeed in keeping prices lower for much longer.

The Fed Is Flying By The Seat Of Their Pants

Much ink is spilled, attempting to interpret where the Fed will move next.  But truth be told, it’s clear the Fed is flying by the seat of their pants.  One need only look at the wide range of FOMC participant forecasts on where they expect to see the federal funds rate.  Yellen released the following chart today, stating:  “The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70 percent probability that the federal funds rate will be between 0 and 3-1/4 percent at the end of next year and between 0 and 4-1/2 percent at the end of 2018.”

fomc participants forecast

One could drive a truck through that 70% confidence interval, but the Fed actually thinks Yellen’s discussion of their consensus view will buttress confidence in the Fed.  Dream on…

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Mr. Dubin is the Managing Editor of TheNewsDoctors.com. He has 25 years of experience as an independent buyside securities and global macro analyst. He has well over a decade of experience as a financial journalist, editor and political analyst. He’s primarily an autodidact, but his formal education includes degrees in economics, international relations and MBA. He welcomes feedback on his articles and will make an effort to respond to comments. Email Eric by sending to “Eric” and then @TheNewsDoctors.com. He can also be “followed” on Facebook: https://www.facebook.com/EricDubin

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