Dear CIGAs,
The big stunner of today was massive intervention by the Swiss National Bank into the Forex markets which absolutely obliterated the Franc. They caught everyone flatfooted and achieved maximum shock value. I had to double check my price quotes and the charts to make sure that they were correct as the currency simply evaporated… The last time the SNB had intervened in these markets was all the way back to 1995 or 14 years ago.
The Swiss cut their 3 month Libor target by 25 basis points but they also stepped into the bond market and purchased substantial amounts of Swiss franc bonds. That in combination with them buying large amounts of foreign currency is in my view what shoved gold up so sharply today. The strategy of the Swiss is pretty clear – undercut their own currency to remain export competitive especially against the Euro and the US Dollar and provide substantial amounts of liquidity in the process. While I have not yet had a chance to calculate the gold price in terms of the Swiss Franc, there is no doubt whatsoever that it shot sharply higher today. After all, it is evident that the Swiss have decided to play the “beggar thy neighbor” policy in terms of the foreign exchange arena. All of this serves to remind investors why it is an imperative in today’s environment to own gold – after all, if your Central Bank is determined to debauch your native currency, you have to protect yourself. It is that simple!
I can well remember when the Swissie was once the “go-to” currency when it came to a safe haven during times of economic or geo-political crisis. Obviously that is no longer the case. My how times have changed! It is going to be interesting now to watch the contest between the SNB and the speculators to see how the game is played out. Will the specs leave them alone or will they play the cat and mouse game and bid it back up to see what kind of reaction they get from the Swiss monetary authorities.
I find the move by the Swiss particularly interesting in light of the following story carried by Reuters –
Note – the Obama’s “tax everything that moves until you kill it” policies coupled with his smash-mouthing of energy companies is indeed having the effect that so many have warned – they are chasing US Corporations out of the US and with that will go many high quality, high paying jobs.
The rush back into gold shoved it up into resistance that I noted yesterday near the $930 level. That is the top of the potential range trade with $890 serving as the bottom. The 25% Fibonacci retracement level also comes in near the $930 level so it has a technical significance. Gold will need to push through this level and through the 20 day moving average near $950 to run out some more of the shorts that were put on early this week. Initial support still remains down near $890 to $880.
Euro Gold managed to build on yesterday’s bounce up and away from the €700 level coming in at €724.777 at the PM Fix with British Pound priced gold moving further away from the 650 level as it was fixed at 671.737, not far off of its all time high at 690.353 for a London PM Fix. Both movements bode well for gold in US Dollar terms as the 700 level in the Euro gold and the 650 in the Pound priced gold both are somewhat synonymous, loosely speaking, with even number $900 in US Dollar terms.
Rolling has begun in the Comex April gold contract and will intensify as we head into the next two weeks.
Today was obviously a reflation day as most commodities were higher with even natural gas getting a bit of a bounce off its fresh 7 year lows of yesterday. That is interesting because the Dollar was higher – again, in contrast to what we have been seeing recently. As I said yesterday, attempting to decipher the day to day gyrations in these whacked out markets is pretty much a guessing game since no one really knows what the psychology is going to be from day to day among the investing public and hedge funds.
I don’t know what got into the bonds yesterday that caused such a sharp rally especially since equities were higher across the board. There was chatter that a particular auction went off better than some were expecting and I suppose that served to allay supply fears somewhat. Technically they managed quite a save as they were on the verge of another technical leg down on the price charts. Bulls dodged a bullet, that is for certain – at least for now. We are seeing further upside in them today as news that the 30 year auction was well received ran the shorts out of their positions – the ongoing technical play continues. They would have to run above 128^00 to give the charts a more constructive look with a move above 130^00 to really spook the bears and threaten to be more than a bounce. The speed at which they are currently rising is indicative of a helluva lot of shorts getting squeezed out. One has to wonder who is going to buy once that has run its course as this is not safe haven buying. Then again, I am amazed that the auctions are supposedly going so well – You could not pay me to own this stuff not with what is coming down the pike.
The mining shares, while higher today as evidenced by the HUI and XAU, still have a lot of technical damage to repair. The 295-296 level in the HUI is a must if it is going to be able to run the bears out of their dens while 124-125 must be taken out in the XAU to prove the bulls are in command. Apparently share dilution to finance ongoing operations is taking its toll on many of the miners but it still beats non-recourse loans if you ask me with their toxic hedged positions. At some point the cost savings in the mines as a result of falling energy prices, etc, will pass through and find their way onto the books. That along with more cash on hand to finance acquisitions should make things interesting in the future.
Equities are now building on their third consecutive day of gains. That will have bottom pickers brimming with confidence and nervous shorts continuing to cover as the squeeze continues. Today’ gains were attributed to not as bad as expected retails sales data and a downgrade of GE debt that was not as severe as many were anticipating.
I will be unable to provide a midday commentary tomorrow due to another obligation but will hope to get something up later in the evening if time permits. Ditto for Monday of next week.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
